NEW YORK (MainStreet) — Kansas City, Detroit and other Midwest housing markets are seeing rents rise faster in percentage terms than what Boston, Seattle and other "hot" coastal cities are recording, an analysis of nearly 900 locales shows.
"High rents in places like New York City, Boston and the Bay Area are almost a given at this point — [but] increasingly, these old-guard markets for rapidly rising rents are having to share the spotlight with a host of smaller, less-heralded markets in the middle of the country," economist Svenja Gudell wrote in a Zillow.com study.
For example, the report found that Kansas City, Mo., rents shot up 8.5% during the 12 months ended Jan. 31 to reach $1,214.
That's slightly below the $1,350-a-month U.S. median in dollar terms, but way above the 3.3% nationwide gain in percentage terms.
In fact, Kansas City's rents are rising faster than what Zillow found in traditionally booming markets such as metro New York (up 2.1% during the same period).
Zillow uncovered a similar story in Pittsburgh, where rents rose a hefty 4.9% over the past year — tying percentage gains seen in popular Los Angeles and Seattle.
"I have zero vacancies right now in all of my units, and a friend of mine has a brokerage and he has zero vacancies, too," said Mark Handlovitch of Pittsburgh's Re/Max Advanced Realtors.
Handlovitch said he normally has around a 5% vacancy rate among the 100 units that he manages, but a "perfect storm" of positives has boosted Pittsburgh's rental market in recent years.
On the supply side, investors snapped up properties at post-bust prices even as tough times reduced residential construction. As for demand, locals who lost homes to foreclosure switched to renting, while oil-and-gas "fracking" has attracted lots of out-of-town workers.
"You see more out-of-state license plates on a daily basis here than ever before," Handlovitch said.
Gudell said in an interview that many Midwest markets face a similar combination — lagging supply from years of weak construction coupled with strong demand in part from foreclosed homeowners who've been forced to rent.
Add in Millennials who are finally getting their first "real" jobs and moving out of mom and dad's basement as the economy improves and rents are shooting up, she said. "These markets all have a lot of rental demand, but some simply didn't build [additional supply] during the housing bust," Gudell said.
The expert recommends that consumers in such markets consider carefully how much income they'll need to afford places.
She adds that renters should also think about whether buying makes more sense than leasing over the long haul. (Zillow has a tool to help consumers calculate how long it takes to "break even" by buying vs. renting in various locales.)
Some of the study's other findings:
- Detroit's median rental values rose 5% over the past year, surpassing the U.S. median and beating markets such as Boston (which rose 4.6% during the period). Gudell said Detroit suffers from a unique problem of having so many blighted housing units that appraisers often value properties that would-be renters want to buy at less than an agreed-to sales prices, prompting banks to reject mortgage applications.
- Cleveland saw rental values rise 4.2% over the past year, exceeding the national median and the annual gains seen in Philadelphia (2.1%) and Washington, D.C. (1.3%).
Zillow's study calculated annual rent changes by estimating how much all houses, condos, co-ops and townhouses in 859 markets could attract if leased out (regardless of whether a property is actually available as a rental). All figures refer to median rents for an entire metro area, not just for units within a city proper.
— Written by Jerry Kronenberg for MainStreet