Newly Released Zillow Rent Index Shows Rental Markets Heating Up Nationwide, But Home Values Continue to Decline

Posted by: Stan Humphries    Tags:  , , , , , , , ,     Posted date:  March 12, 2012  

The January Zillow Real Estate Market Reports show that national home values decreased 0.5 percent to $146,200 from December to January. On an annual basis, this represents a 4.6 percent decline (see Figures 2 and 3).

New to this report is the Zillow Rent Index (ZRI), which is the rental counterpart to the Zillow Home Value Index (ZHVI), tracking the median rent of all homes in a given geography. This new index allows us to compare the rental performance between different areas, down to the ZIP code level (click here for details on the ZRI methodology). The ZRI data shows that, while national home values have fallen over the past year, rents have appreciated 3 percent over the same period (see Figure 1). Nearly 70 percent of the metropolitan areas covered by the ZRI showed year-over-year gains. By contrast, only 7.3 percent of the metros covered by the ZHVI experienced increases in home values.

Home Values

The ZHVI covers 164 metropolitan areas of which 63 metros showed monthly home value appreciation, while 91 metros showed home values depreciation. Ten metros, including Boston, Los Angeles, Washington, D.C. and San Francisco, saw home values remain flat on a monthly basis. The hard-hit Phoenix market continues to show consistent monthly appreciation as do other top markets such as Charlotte, Miami and Stockton. The Chicago metro has continued to do poorly, falling 1.1 percent on a monthly basis. Tucson and Flagstaff join Chicago with monthly home value losses of greater than one percent.

Overall, national home values have fallen 24.7 percent since their peak in May 2007, and home values are back to November 2003 levels. An interactive chart of all metro regions can be found at the bottom of this brief.


The newly-released Zillow Rent Index showed year-over-year gains for 69.2 percent of metropolitan areas covered by the ZRI. By contrast, only 7.3 percent of metro areas covered by the ZHVI experienced annual homes value increases.

Some of the hardest hit markets that are currently still experiencing home value declines have shown significant rent increases over the past year. This fact is not surprising given the increase in foreclosures that accompany home value declines, and the rental demand created by foreclosed households. For example, while Chicago home values have fallen 10.4 percent year-over-year, and continue to decline on a monthly basis, rent values in the metro have increased 9.1 percent over the past year. In the Minneapolis-St. Paul metro, rents rose 11 percent on an annual basis and home values fell 8.1 percent.


The rate of homes foreclosed increased in January with 8.4 out of every 10,000 homes in the country being liquidated, up from 8.1 out of every 10,000 homes in December (Figure 4). This increase is in line with previous expectations as banks continue to ramp up their foreclosure process after the recently completed attorneys general settlement.

Foreclosure re-sales also increased in January – a natural development as the banks work through their foreclosure and REO backlogs – making up 19.5 percent of all sales in the month, up significantly from 18.1 percent in December. The increased liquidation rate and, in turn, higher number of foreclosure re-sales will continue to put pressure on home values even while increased housing demand from an improving overall economy helps stabilize home values.


There is not much substantive change in our outlook from our analysis last month. We think home sales, both existing and new, will do quite well in 2012 as an improving economy, low absolute levels of home values, slower rates of home value depreciation, and continued low financing rates all combine to get more buyers off the fence in the 2012 home buying season. Housing starts will also benefit from increased housing demand paired with very low new construction inventory levels.

Good news on the sales volume front will be occurring against a backdrop of modestly declining home values in many markets, driven primarily by the fact that a large percentage of monthly sales will continue to consist of cheap foreclosure re-sales. Nationally, the Zillow Home Value Forecast calls for a 3.7 percent decline in home values from December 2011 through December 2012. That said, many markets are expected to see an increase in home values this year including Los Angeles, Washington, D.C., Riverside and Phoenix. Many other markets, while expected to end 2012 with home values below the level at the start of the year, will see consistent monthly appreciation by year-end. And, even in markets predicted to see continued declines this year, there are sub-regions within the larger metro region that are showing favorable trends in home values. Geographical heterogeneity in home value performance is increasing considerably as the housing recession slowly draws to a close.

As has been the case over the past year, a key bright spot in the housing sector is the rental market where a large and growing pool of renters is spurring investors to purchase distressed inventory in order to convert it to rental inventory. The rental market has been experiencing strong annual appreciation, especially in some of the hardest hit markets, and will continue to be a strong driver for investment.

A PDF version of this report can be found here.

About the author
Stan Humphries
Stan is Zillow's Chief Economist. To learn more about Stan, click here

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