RENTAL MARKETS LOCALLY AND ACROSS THE COUNTRY: A YEAR OF CHANGE. Dr. Skylar Olsen, Senior Economist Zillow.com/research

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1 RENTAL MARKETS LOCALLY AND ACROSS THE COUNTRY: A YEAR OF CHANGE Dr. Skylar Olsen, Senior Economist Zillow.com/research 1

2 National rent appreciation has slowed significantly from a boom in 2015 Source: Zillow Rent Index (November 2016) 2

3 Annual rent growth is strongest in the Pacific Northwest. Over 3% strong. Source: Zillow Rent Index (November 2016) 3

4 5 While rent is still growing almost everywhere, recent dynamics vary widely

5 6 Jobs in high wage fields recovered first, followed by medium wages

6 7 New higher incomes allow home seekers to out bid others

7 After showing signs of steady improvement in recent years, household formation has slowed again 8 Source: Zillow analysis of U.S. Census Bureau (BOC): Housing Vacancies and Homeownership (CPS/HVS)

8 Renter household formation has slowed, but continues to outpace owner household formation Source: Zillow analysis of U.S. Census Bureau (BOC): Housing Vacancies and Homeownership (2016 Q3) 9

9 The U.S. homeownership rate is near historic lows Source: U.S. Census Bureau Homeownership Rate for the United States (2016 Q2) 10

10 11 Millennials are not forever-renters

11 12 Home buying simply comes much later in life

12 13 and requires financial stability

13 2017 Prediction! Homeownership rate will increase again as millennials age. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States. 14

14 15 There will be plenty of younger adults left over.

15 Homes listed for sale are selling so quickly 16 Source: Zillow Days on Zillow, Including REOs (November 2016)

16 that the number of available for-sale properties at any given time has plummeted -39.5% -5.9% Peak-to-Current Year-over-Year 17 Source: Zillow For-Sale Inventory (Seasonally Adjusted, Smoothed) (November 2016)

17 Inventory shortages in Denver 18 Source: Zillow For-Sale Inventory (Seasonally Adjusted, Smoothed) (December 2016)

18 Inventory shortages in Nashville 19 Source: Zillow For-Sale Inventory (Seasonally Adjusted, Smoothed) (December 2016)

19 Inventory shortages in Tampa 20 Source: Zillow For-Sale Inventory (Seasonally Adjusted, Smoothed) (December 2016)

20 Inventory shortages in Orlando 21 Source: Zillow For-Sale Inventory (Seasonally Adjusted, Smoothed) (December 2016)

21 Denver ZHVI YoY Tiers Source: Zillow Home Value Index (December 2016) 22

22 Nashville ZHVI YoY Tiers Source: Zillow Home Value Index (December 2016) 23

23 Tampa ZHVI YoY Tiers Source: Zillow Home Value Index (December 2016) 24

24 Orlando ZHVI YoY Tiers Source: Zillow Home Value Index (December 2016) 25

25 The price gap between newly built and existing homes is widening 26 Source: National Association of Realtors and U.S. Census Bureau Construction Review

26 Permits for new multifamily projects are near pre-recession levels, while single-family permits remain low 27 Source: U.S. Census Bureau: New Residential Construction (September 2016)

27 Construction jobs have recovered more slowly than overall employment 28 Source: U.S. Bureau of Labor Statistics, All Employees, Residential Building Construction (January 2016)

28 2017 Prediction! Builders will have to cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages. 29

29 Rent tends to rise faster in cities with stricter land-use regulations Source: Zillow analysis of data from the Wharton Residential Land Use Regulation Index, 2008, and Zillow Rent Index, January 2011-January

30 31 Rent appreciation stronger in metros where residential construction is most regulated

31 32 Breaking down metros into urban, rural, and suburban markets: Atlanta

32 33 Breaking down metros into urban, rural, and suburban markets: Nashville

33 Where are home shoppers looking to move to and from? 34

34 Nationwide, the share of income spent on a mortgage is well below historic norms while rents have become historically unaffordable Source: Zillow Mortgage Affordability, Zillow Rent Affordability (2016 Q3) 35

35 Rents are more unaffordable than ever in many markets Share of Income Spent on Rent, 2016 Q2 Average Share ofincomes Spent onrent, % 34% 30% 30% 25% 30% 48% 44% 25% 41% 28% 27% 36% 42% 44% 32% 23% 32% 29% 27% 19% 26% 25% 22% 20% 24% 36% 28% 21% 26% 21% 23% 33% 35% 31% 24% 21% 28% 26% 18% 36 Source: Zillow Rent Affordability (2016 Q3)

36 37 Rent affordability by tier: Charlotte

37 38 Rent affordability by tier: Tampa

38 As the share of income spent on rent rises, more renters report saving nothing 39 Source: Zillow analysis of data from the Federal Reserve Board, Survey of Household Economics and Decisionmaking 2013 and 2014, and the U.S. Census Bureau, ACS, IPUMS

39 40 The less affluent have to trade distance in order to maintain affordability.

40 2017 Prediction! Denser development of smaller homes close to public transit and urban centers. 41

41 Growth in rents over the next year is expected to slow in many high-growth markets 42 Source: Zillow Rent Forecast (November 2016)

42 2017 Prediction! Rental affordability will improve as incomes rise and growth in rents slows. 43

43 44

44 U.S. home values continue to regain value lost since % -2.1% +6.5% Peak-to-Trough Peak-to-Current Year-over-Year Source: Zillow Home Value Index (November 2016) 45

45 The national annual rate of home value appreciation has picked up lately Source: Zillow Home Value Index (November 2016) 46

46 Home value growth in Portland, Seattle and Dallas is among the fastest in the U.S. Source: Zillow Rent Index (November 2016) 47

47 Home value growth is expected to slow through Source: Zillow Home Value Forecast (November 2016)

48 49