Homeownership, Property Values, & Rental Prices in 2015

Income vs Rent in Top Job Markets - 2015

Changes in the housing market were inevitable following the housing crisis of 2008.  Homeownership has now reached a 20 year low, driving demand for rental properties.  Despite large reductions in property values over the last 5 years, median asking rent has grown at a consistent rate over the same time period.  Less homeownership makes for a mobile labor force, but some of the fastest growing job markets are the least affordable.

According to data from the US Census Bureau (Figure 1), homeownership was on the rise beginning in the early 90s. This growth continued heading in to the housing crisis in the mid-2000s.  In the wake of the housing bubble bursting, homeownership began trending down, and it has continued to decline below 64%, a 20 year low.

home-ownership

Figure 1. Rate of homeownership hits 20-year low. Data sourced from US Census.

The steep decline in homeownership has obviously had a variety of effects on the housing market.  One of the most obvious results of a falling rate of homeownership is a proportional increase in renters.  Figure 2 demonstrates that the decline in homeownership around 2004-2005 was matched by the rise in number of renter occupied housing units.

 

renter-occupied-Demand Increase

Figure 2. Renter occupied housing rises nationally. Data sourced from US Census.

When looking at the proportion of income spent on rent, it becomes quite clear that asking rental prices are intimately tied to what the market can sustain.  As table 1 indicates, between the year 2000 and 2013, median rent grew nationally at a consistent rate with median income.  The data shows that rent typically stays around 30% of annual income.  This is a sensible balance that is held in check by the standard economic practice of spending roughly 1/3rd of household income on housing.

Table 1. Proportion of Income to Housing 2000 – 2013

Year Median Rent Median Home Price Median Income Income to Rent
2000 $483.00 $90,400.00 $20,957.18 27.66%
2001 $518.00 $93,300.00 $21,767.29 28.56%
2002 $568.00 $110,600.00 $22,152.84 30.77%
2003 $589.00 $117,100.00 $22,576.71 31.31%
2004 $615.00 $122,100.00 $23,355.83 31.60%
2005 $605.00 $140,100.00 $23,962.20 30.30%
2006 $633.00 $168,800.00 $24,891.59 30.52%
2007 $665.00 $187,600.00 $25,737.20 31.01%
2008 $696.00 $178,900.00 $26,514.38 31.50%
2009 $708.00 $156,900.00 $26,261.29 32.35%
2010 $698.00 $140,300.00 $26,363.55 31.77%
2011 $694.00 $138,600.00 $26,965.43 30.88%
2012 $717.00 $135,400.00 $27,519.10 31.27%
2013 $734.00 $142,000.00 $28,031.02 31.42%

Data: Census.gov

 

One interesting point that is easily overlooked in the data provided in Table 1 is that although the ratio of income to rent has remained in balance, median asking home price has substantially varied.  Of course, the variance in home price is due to the housing crisis that drove home prices drastically down.  However, one would expect to see similar changes in median rental prices.  Figure 3 shows the changes in median asking home prices through 2014, while figure 4 reveals steadily rising rental prices.

median-asking-home-sales

Figure 3. Median sales figures through 2014 reflect slowly recovering home values. Source: US Census 2014 Residential Quarterly Report.

median-asking-rent

Figure 4. Median rental costs show consistent growth nationally. Source: US Census 2014 Residential Quarterly Report.

 

The data in Figures 3 and 4 reflect the increasing difference between property values and rental prices.  Clearly, the increased demand resulting from the decrease in homeownership has pushed rental prices disproportionately higher.  One can conclude that investors in rental properties purchased immediately following the housing crisis are experiencing greater profit margins than have been seen in the last 20 years.

As a result of the economic recession, employment has been hard to find.  Some economists believe that the decrease in homeownership can help fuel the economic recovery by allowing for an increase in labor mobility.  With fewer families firmly rooted in place with their home and mortgage, people are freer to move where the job markets are growing. Table 2 displays the results of an investigation into job market growth, median household income, and median asking rental prices. The data revealed that some of the most rapidly growing job markets are located in cities with a very high cost of living.

Table 2. Proportion of Income to Rent in Top Hiring Job Markets

Hiring Rank1 City Median Comp.2 Median Rent3 Income to Rent
1 San Jose, CA $81,829 $2,570 37.69%
2 San Francisco, CA $75,604 $3,715 58.97%
3 Raleigh-Durham, NC $54,448 $1,051 23.16%
4 Washington DC $65,830 $2,254 41.09%
5 Seattle, WA $65,277 $1,791 32.92%
6 Boston, MA $53,601 $2,900 64.92%
7 Austin, TX $53,946 $1,463 32.54%
8 Baltimore, MD $41,385 $1,600 46.39%
9 Denver, CO $50,315 $1,595 38.04%
10 Salt Lake City, UT $45,862 $999 26.14%
11 Nashville, TN $46,141 $1,167 30.35%
12 Dallas/Ft Worth, TX $42,846 $1,400 39.21%
13 Richmond, VA $40,496 $1,080 32.00%
14 Kansas City, MO $45,275 $950 25.18%
15 Minneapolis, MN $49,885 $1,356 32.62%
16 Hartford, CT $29,430 $1,377 56.15%
17 Chicago, IL $47,270 $1,845 46.84%

Data: 1Glassdoor.com    2US Census 2013 ACS   3Rentbits.com accessed June 9th, 2015

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