Why Rents Are Rising as Home Values Fall

With so many people priced out of home ownership, the demand for rental housing is booming.

For all the troubles faced by the housing market in recent years, things are turning around in at least one area. Rents are rising across the country, according to new figures from the real estate website Zillow.

Between January 2011 and January 2012, median rents increased by 3 percent. Over that same time period, median home values fell by 4.6 percent.

The actual increase in median rent – from $1,182 in January 2011 to $1,218 in January 2012 – isn't huge. But the fact that rents are increasing while home values continue to drop is a sign that the foreclosure-based problems of the housing crash are reverberating widely.

Rents are up in 69.2 percent of the metropolitan areas tracked by Zillow, which bases its numbers on rent estimates from 84.9 million properties. On the flip side, only 7.3 percent of the metropolitan areas tracked saw home prices increase over the last year.

Zillow's report sees a bright side to all this. "[A] large and growing pool of renters is spurring investors to purchase distressed inventory in order to convert it to rental inventory," the report notes. That, ideally, would mean more foreclosures are being bought up and reused, filling up what might otherwise have been empty properties blighting neighborhoods. And if more of them re-enter the housing market as rentals, maybe those prices will start to go down. But with so many people priced out of home ownership, the demand for rental housing is likely to keep prices rising for some time.

Chart via WSJ.com

About the Author

  • Nate Berg is a freelance reporter and a former staff writer for CityLab. He lives in Los Angeles.