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Rental rates grow faster than home values locally, nationwide

Low mortgage rates have made homebuying more affordable than renting, according to Zillow research.
Rental rates in St. Louis continue to grow at a faster pace than home values. Home values in St. Louis averaged $133,700 in April, up 3.3 percent from the same month last year. Rental rates, meanwhile, have risen 4.5 percent year-over-year to $1,137 per month. It’s the eighth consecutive month rental rates have outgrown home values.

That trend holds true nationwide, too. Rents grew faster than home values in 20 of the 35 largest U.S. housing markets. U.S. rents — up 4 percent year-over-year in April at $1,364 per month — grew at their fastest pace in two years.

According to the research, U.S. homebuyers can expect to spend on average about 15.3 percent of their income each month on a typical house payment. By comparison, renters can expect to spend about 30 percent on a monthly rent payment.

“There are tremendous incentives to get into homeownership these days: Mortgage access is improving, interest rates are low, and home values remain below prior peaks,” Zillow Chief Economist Stan Humphriessaid. “But it will be increasingly difficult for many renters to realize these benefits as this country’s growing rental affordability crisis continues to worsen. More income going to rent means less going to savings for a down payment and other costs, keeping renters renting longer and feeding into the high demand that is contributing to rising rents in the first place.”

Nationwide, Seattle-based Zillow (Nasdaq: Z) projects home values to increase 2 percent. In St. Louis, home values are projected to increase 2.9 percent in April 2016.


Rents rise for seventh straight month in St. Louis

Brian Feldt of the St. Louis Business Journal reports that January rents in St. Louis have rose 4.2 percent to an average of $1,138 per month, according to real estate website Zillow. According to Zillow, it’s the seventh consecutive month rental rates have risen.

In January, national rents were up 3.3 percent year-over-year to $1,350 per month, leading Zillow officials to say the rental market could be hindering home purchases.
“The rental market used to be and should remain a stepping-stone to homeownership,” said Zillow economist Stan Humphries. “But given how widespread rental affordability problems have become, the rental market could be acting more like a barrier to buying. More supply will help ease the crunch, both from new construction and as current renters transition into homeownership, creating more vacancies in existing developments. But neither will happen overnight.”

The most expensive market remained San Francisco, where renters pay on average more than $3,000 per month. Kansas City rent, meanwhile, rose 8.5 percent year-over-year to $1,214 per month.

A handful of developments in downtown St. Louis will add nearly 1,000 new apartments to an already crowded market over the next few years. Most recently, Crowne Plaza, a 440-room hotel on North Fourth Street, was sold with plans to turn the building, valued at $6.35 million, into mostly apartments. Downtown STL Inc. reported 282 apartment units were added to the market in 2014, up from the 186 rental units that hit the market in 2013. Another 300 are expected this year. Doug Woodruff, president and CEO of Downtown STL, said occupancy rates are around 90 percent. He said downtown has 7,800 apartment residents living in 6,800 units.