• Annual rent appreciation rose from 0.7% in October to 1.1% in November, bouncing back after nine months of decline.
• Home values posted both the largest monthly and quarterly increases in Zillow records dating back to 1996.
• Strong growth is expected in 2021 for sales, rents and home values.

Rent growth began to turn around in November after a long slide that began in February, and home value growth soared to new heights, setting the stage for an expected takeoff in sales, continued recovery in the rental market and another 10% growth in home values in 2021.

The typical U.S. rent was up 1.1% year-over-year in November, to $1,734, down from 3.9% growth in February but a decent bounce-back from weak 0.7% annual growth in October. Among the 50 largest markets, the biggest monthly declines were in Seattle (-1.1%), Milwaukee (-1.0%) and Chicago (-0.8%). Weakness in those two large midwestern metros is somewhat of a departure from prior months, when  expensive coastal metros including San Francisco and New York has the largest declines. 

Typical rents in November were in roughly the same place where they began the year, rising just $4/month since January as renters were particularly hard-hit by the coronavirus pandemic and resulting recession. Recently, Gen Z renters in particular began venturing back out on their own and often finding good deals — but those deals may not carry over into a second lease near by the end of 2021.

With a vaccine on the horizon and Gen Z continuing to graduate from college, we expect the cloud of uncertainty surrounding the pandemic to lift and demand for rental units to surge in 2021. But while this coming rebound in the rental market is good news for many, it will certainly put millions of renters hit hard by pandemic-related income loss in an even more tenuous position, and further government intervention will likely be needed to avoid a painful wave of evictions.

While the rental market appears poised to turn the corner, the for-sale market continues to have the pedal pressed firmly to the floor. The typical home value nationwide rose 1.1% from October to November, to $263,351, and 3% over the past three months — both the largest gains on record going back to 1996. Among large metros, the largest annual increases in November were in San Jose (14.2%), Phoenix (14.1%) and Seattle (13.2%).

The rapid acceleration in home values across the U.S. is driven by robust demand and diminishing inventory — the same forces that helped establish this firm sellers’ market after a short spring lull.

Looking forward to next year, we expect home values to increase by 3.6% in the three months ending February 2021 and by 10.3% from November 2020 to November 2021. Home sales are also expected to grow strongly in 2021, building on solid — and somewhat surprising, given pandemic challenges — recent gains in 2020.

This rapid price and sales growth will be driven by the same factors that took the steering wheel in 2020: strong demographic trends, shifts in buyer preferences sparked by the pandemic, low mortgage rates, and short supply. The millennial generation is moving into their mid-30s and bringing a wave of demand from renters looking to buy their first homes.

Mortgage rates may inch back up to around 3% next year, but even at that level they’ll be making home purchases attractive. And even though builders are finally firing on all cylinders delivering new homes, it will take them a long time to make up for the homebuilding deficit we accumulated from 2008 to 2019.

Despite the pandemic, 2020 has been a remarkably strong year for the housing market. Zillow economists expect 5.7 million homes to be sold by the end of the year- – 5.9% more than were sold in 2019. Next year is forecasted to be much stronger, with 6.9 million homes expected to be sold — the strongest year since 2005 and 21.9% more than 2020.

Methodology

The Zillow Weekly Market Reports are a weekly overview of the national and local real estate markets. The reports are compiled by Zillow Economic Research and data is aggregated from public sources and listing data on Zillow.com. New for-sale listings data reflect daily counts using a smoothed, seven-day trailing average. Total for-sale listings, newly pending sales, days to pending and median list price data reflect weekly counts using a smoothed, four-week trailing average. National newly pending sales trends are based upon aggregation of the 38 largest metro areas where historic pending listing data coverage is most statistically reliable, and excludes some metros due to upstream data coverage issues. For more information, visit www.zillow.com/research/.

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