Why Aren’t More Renters Becoming Buyers?

The Zillow Real Estate Market Report for February has recorded national median rent as accelerating at its fastest pace in 21 months. Over the past year, U.S. median rent rose 2.8 percent, reaching a median of $1,445. Attributed to this pattern is the lack of for-sale inventory, as well as the lower affordability of homes for buyers due to rising prices and mortgage rates.

"Rental appreciation slowed between 2015 and mid-2017, but is once again picking up steam, re-accelerating over the past nine months," said Aaron Terrazas Senior Economist at Zillow.

Cities with the fastest appreciating rental markets are along the West Coast, in cities such as Sacramento and Riverside, California, and Seattle, Washington. This marks the seventh month in a row that Sacramento has topped the list of median rent market acceleration, experiencing rental growth of more than 8 percent since last February to $1,849. In addition to locations along the West Coast, areas such as Minneapolis and Atlanta are also rising in the market, both reporting about a 4.5 appreciation rate over the last year.

"For-sale inventory is tight, and with home prices continuing their rapid climb, it's becoming more and more difficult for renters to become owners, forcing them to rent longer than they otherwise would have,” Terrazas said. “Searching for the 'right' home has become a drawn-out affair, and rising prices require more savings for a down payment. Were it not for strong new apartment construction over the past half-decade, rental appreciation would be even stronger than it is now."

For the year ending in February 2018, home values rose 7.6 percent to a median of $210,200.  Over the past nine months, home value growth has fluctuated in the range of 7.2 percent to 7.6 percent annually. San Jose, California, Las Vegas, and Seattle reported the greatest home value growth, with San Jose rising more than 26 percent in the year-over-year analysis, reaching a median home value of $1,252,400, followed by Las Vegas with an increase of nearly 16 percent, and Seattle with an increase of 14 percent.

Buyers will have 10.3 percent fewer homes to choose from this year, a pattern of decline that has continued every month since February 2015. Declines have accelerated into the double digits in nine of the past ten months. San Jose, Las Vegas, and Columbus, Ohio are reporting the greatest drop in inventory.

Mortgage rates also reached their highest levels since April 3, 2014, with rates increasing throughout February. Rates opened the month at 4.06 and ended at 4.26 with a mid-month high of 4.28 percent.