Yesterday, online real estate site Trulia released rental data for the 100 largest housing markets in the country. The report showed that while home prices have increased slightly in the past year, rent prices have increased more than 5% in the 12 months ending April 31, 2012.
In six of the 100 markets, asking rent has increased by 10% or more. 24/7 Wall St. examined these six cities, which are located all over the country, to determine why rents have increased so much there.
24/7 Wall St. spoke to Trulia’s chief economist, Jed Kolko, who gave several possible explanations for the rents’ increases. First, he said, housing prices in many of these areas did not drop much during the recession, making them less attractive to buyers.
As evidence, home prices in four of these cities fell less than the average for the 100 cities. In Indianapolis, housing prices declined just 6.6% from their peak, the second-smallest decline in the United States. Instead of buying homes, Kolko explained, people moving into these areas have chosen to rent, pushing rental prices higher.
According to Kolko, the second major factor leading to increased rents in these areas is an influx of new employment to the region. Many of these areas have experienced major growth in their job markets. When new workers move to a region, they are likely to seek rental properties over permanent residences until they know how stable their new jobs are.
This is especially the case following a recession, when new employees are not confident in their job security. “If you get a new job, it’s not like you go out the next day and buy a house,” he said. “You want to make sure that job is stable — that you’ve saved up for a down payment — before you decide to make that home purchase.”
Of the six cities on our list, four had employment growth in the past year above the average of the 100 markets. Three were in the top 16 for job growth. In the San Francisco region, where rental prices increased 11.1% in the past 12 months, the number of employed people rose nearly 3% in the past year.
24/7 Wall St. obtained asking home price and rent values for the 100 largest real estate markets from Trulia for the 12 months ending April 31. Trulia also provided us with declines in home value in these areas from their prerecession peaks, as well as change in employment in the past year. Also, when applicable, we examined prices and change in inventory for homes, for these markets, as provided by Realtor.com.
6. Colorado Springs, Colo.
> Change in rent: +10.2%
> Change in sales price: +4.3%
> Price drop from peak: -11%
> Job growth, 1 year: +0.53$
Colorado Springs has as experienced only a modest increase in jobs in the past year. Yet rent in the region increased 10.2% in the 12 months ending April 31 — the sixth-largest increase among the 100 metropolitan areas the agency examines. Home prices also increased over the same period by 4.3%. According to Realtor.com, the number of listings in the area fell more than 25% in the past year, perhaps partly explaining the price increase.
5. Indianapolis, Ind.
> Change in rent: +11.1%
> Change in sales price: +1.7%
> Price drop from peak: -6.6%
> Job growth, 1 year: +1.49%
Of the 100 metro regions examined by Trulia, home prices in Indianapolis had the second-smallest decline during the recession, losing just 6.6% of total value. In the past year, job growth was roughly 1.5%, above average for the cities on our list. Compared to rents, asking home prices increased to a much lesser extent of just 1.7%, the 32nd-largest rise among the cities examined. According to Realtor.com, list prices as of April 31 were among the lowest in the U.S.
4. Warren-Troy-Farmington Hills, Mich.
> Change in rent: +11.8%
> Change in sales price: +6.9%
> Price drop from peak: -35.5%
> Job growth, 1 year: +2.53%
During the recession, home prices in the Warren-Troy-Farmington Hills area of Michigan fell 35.5%, among the biggest drops in the country. Recently, however, asking home prices in the region, which is part of suburban Detroit, have recovered rapidly, up 6.9% in the past year alone. Compared to homes, however, rent prices have truly skyrocketed in the past year. In the last quarter alone, rent went up 4.5%. In the past 12 months, rents are up 11.8%. The likely reason for this increase is the 2.5% growth in employment in the area, the 10th-highest jump in the U.S.
3. Miami, Fla.
> Change in rent: +12.3%
> Change in sales price: +16.1%
> Price drop from peak: -45.5%
> Job growth, 1 year: +2.34%
Among the real estate markets to have the largest increases in rent in the past year, no region was more severely affected by the recession. Home prices in the area fell 45.5% from peak, the 14th-biggest decline in the country. However, the situation has begun to turn around in the area. Home prices increased 16.1% in the past year, and rents rose an estimated 12.3% during that time. Job growth is strong in the area at 2.34%.
2. San Francisco, Calif.
> Change in rent: +13.2
> Change in sales price: -0.5%
> Price drop from peak: -22.1%
> Job growth, 1 year: +2.92%
The increasing popularity of the San Francisco real estate market is extremely lopsided. List prices for homes actually fell 0.5% in the past 12 months. Meanwhile, rent prices increased 13.2% — the second-largest increase in the country. The number of employed people in the city grew just shy of 3% in the past year, the seventh-highest rate in the country.
1. Edison-New Brunswick, N.J.
> Change in rent: +15.6%
> Change in sales price: -4.7%
> Price drop from peak: -18.2%
> Job growth, 1 year: +0.69%
Job growth in the Edison-New Brunswick metro area has been modest. Nevertheless, rent in the region jumped a full 15.6% in 12 months, by far the largest increase in the country. In the past quarter alone, rent increased 4%. Meanwhile, home prices actually fell 4.7%, the 11th-largest decrease in the country.