Analyzing U.S. Home Rental Prices
By: Stephan Teodosescu
SAN FRANCISCO, Calif. -- Among young professionals just graduating college finding an apartment to rent in one of America's most desirable cities is often top of mind. That was my predicament four years ago when I graduated from Cal Poly and packed my bags to move north to San Francisco.
Many housing analysts believe the U.S. housing market is hot right now, meaning rising home values and rental prices are on the upswing (read: less affordable for the general population, especially younger folks). Things are quite different from what they were during the housing crisis a decade ago. Unemployment is low, the overall stock market is doing well and the housing market itself has made a miraculous comeback.
This, of course, doesn't spell prosperity for everyone in America. The New York Times came out with a fantastic interactive data visualization recently identifying changes in the demographics of urban centers over the years. That got me thinking about visualizing America's young professional's main predicament: rental home prices.
I did this with the help of Zillow, an online real estate database company that has a litany of data resources on U.S. housing and rental prices available for public consumption.
One of their primary metrics is ZRI, an index identifying the median of the estimated rent price for all homes and apartments in a given region, including those not currently listed for-rent. It's essentially a list average for home and rental prices in an area, not just those currently listed. They "...estimate rents (Rent Zestimates) based on proprietary statistical and machine learning models. Within each county or state, the models observe recent rental listings and learn the relative contribution of various home attributes in predicting prevailing rents." Some of the attributes they consider include physical facts about the home, prior sale transactions, tax assessment information and geographic location, among others.
The full data visualization can be found on Tableau Public.
When it comes to the most expensive counties
Priced Out | Counties in California make up six of the top 10 most expensive counties to rent, according to Zillow. Data as of May 2019.
to rent, California dominates. Seven of the top 10 priciest counties are located in the Golden State with San Francisco County leading the way with a median annual ZRI of more than $4,500 per month. Marin County, just north across the Golden Gate Bridge, is not far behind with an median rental costing one just under $4,500. This data is as of May 2019 and considers rentals of all sorts including single-family homes, multi-family homes, condominiums and cooperatives.
It should come as no surprise California is the most expensive state to rent in as a whole. California is one of only three states in the U.S. (New Jersey and Massachusetts) where the median rental price exceeds $2,000 per month. These states are followed followed by rapidly-growing Colorado, according to the data provided by Zillow. Oklahoma and Alabama are the cheapest priced at less than $1,000.
Zillow mentions the median monthly U.S. rent is $1,479, up 2.7 percent year-over-year, in its most recent market report. According to the report, the annual pace of rent growth has accelerated in each of the first five months of 2019 when compared to the month prior. This is in contrast to the previous year in which rent growth slowed throughout much of 2018.
Other factors the report mention, such as a sustainable pace of wage increases in comparison to rent increases throughout the nation, also mean those who are currently renters are more likely to continue to rent rather than buying new homes.
"Renters comfortable in their apartments may be more able to cover rent increases, and could choose to stay renting longer than they otherwise might have. And a lack of inventory – especially at the entry-level end of the market – means it may take longer for many potential buyers to find the right home for them, also keeping them renters longer."
According to the Wall Street Journal, as urban housing prices creep up younger generations are deciding to move to more suburban areas of the country. Fourteen of the 15 fastest growing cities with populations greater than 50,000 are suburban communities. In addition, younger folks are becoming increasingly priced out of the housing market forcing them to rent for longer than their parents' generation. Rates of homeownership for young adults are hovering around their lowest levels in more than thirty years.
This has been coupled with a relative increases in rental prices since the housing crises, says Zillow.
Single Family Rents | Single family residence rental prices, according to Zillow's ZRI, have decreased the past few years but are now increasing once again.
You'll notice these data don't match the story that rental prices are on the rise as a whole; It looks like they've been on the decline ever since peaking in 2015. Unfortunately, the dataset presented herein is not completely indicative of all prices. The ZRI data are much more robust starting in 2017, while data points on various counties and cities is sparse in years earlier than that. I believe the data that are available in those earlier years are skewing the average rental prices higher than reality. In addition, according to the Zillow article, the perpetual increase in rents is in regards to all types of homes whereas the above plot focuses on single family residences only.
All in all the data aren't perfect but the above analysis gives us a window into the world of U.S. rental prices throughout the country. Bottom line is affording where I currently live in California is tough, but that's not an issue unique to me.
Featured Image: Nob Hill neighborhood of San Francisco.