As rents have soared in recent years, it should be good news that prices in some of the country's most expensive metropolitan areas may finally be moderating. Nationwide, rents for the single-family market are forecast to increase by 1 next year. 7% will rise – the same appreciation rate as in the last twelve months – according to the latest Zillow rent forecast report.
Overall, Zillow expects rents in 34 of the 35 largest U.S. metros (all except St. Louis) are expected to rise, although a third of these markets are expected to grow at a slower rate than the national average ( 1. 7%), and 11 will see a slowdown in rents compared to last year. "There's good news on the horizon for renters," says Dr. Svenja Gudell, Zillow Chief Economist. "Current renters in these markets can expect rents to slow somewhat over the next year. Instead of the 10% rent increase observed in some places, we expect growth of 4% to 7%. " (For more information, see 6 Tips for Renting an Apartment .)
10 Cities where rents are rising fastest
Two West Coast tech centers – Seattle and Portland – are expected to see the largest increases in rents, where prices are likely to rise by 7. 2% and 6 will increase. %, respectively. Other tech job centers will also see increases. Below are the 10 cities where rents will increase the most over the next year, according to Zillow, along with each city's projected rent increase and monthly rent for a one-bedroom unit (from the Zillow Rent Index):
Projected rent increase
Monthly monthly rent
Los Angeles (including Long Beach and Anaheim)
Millennials are moving to tech centers like Seattle and Portland for the jobs and high salaries, but high demand for the relatively small number of rental units is driving up rents. "The high rent growth in these markets is driven by high demand and low supply," says Zillow's Gudell. "We have more renters today than in the past and most newly formed households are renter households. "
In many cases, renters are spending well above the recommended 25% to 30% of gross monthly income on rent (the U.S. Department of Housing and Urban Development considers a household to be burdened if it spends 30% or more of its income on rent).For example, a recent study by online provider ABODO found that the majority of renters in Los Angeles (including Long Beach and Anaheim; 59%), San Diego (57%), and Sacramento (54%) are paying more than 30% of their income per month in.
Rising rents and homeownership
Rising rents mean people have less money to spend each month – and less to save. One consequence is that homeownership is out of reach for many: without a way to save for a down payment, even those who earn a good income have trouble getting a mortgage. At 62.9%, the homeownership rate is the lowest it has been since 1965, when the U.S. Census began tracking the metric.
Of course, there are non-financial reasons for the decline in homeownership, including delayed life decisions to get married or have children, but high rents don't help. According to a recent Zumper renter survey, the overwhelming majority of renters in ten of the largest metros (including six of the ten metros where rents are rising fastest) would choose homeownership if they could overcome the financial hurdles to traditional mortgages: the large down payment requirements. (See How to get a no down payment mortgage and Use your savings on a mortgage payment .)
"Broadly speaking, the falling homeownership rate is a sign that renting is not just for those just starting out or making a transition, but is becoming an increasingly viable longer-term option for many households, " says Gudell. "This also means that incomes are not yet rising fast enough to broadly support new homeowners, and inventory is too tight to provide meaningful access to affordable housing. "
The Bottom Line
Rents in 34 of the 35 largest metros in the U.S. are expected to rise next year, albeit at a slower pace than in recent years. While high rents burden many households because they spend more than 30% of income on rent, expensive rents also make it difficult to save to buy a home, affecting not only individuals and families, but entire communities. According to a report by the National Association of Realtors, homeownership fosters a sense of community, reduces crime rates and brings stability to neighborhoods.
You may also be interested in reading. Should you buy or rent a house? And compare the true cost of buying versus renting .