Rapid Rent Increases Not Keeping Pace with Home Prices

There have been a few stories in the Seattle Times recently about the rapid rise of local rents:

August 24: Soaring rents force lifestyle changes

September 23: Local apartment rents continue climbing

So I thought it would be a good time to take a look at how rents are comparing to home prices, since they have both been on a tear this year.

Here’s a look at both series back through 1990, indexed to January 2000:

Seattle-Area Home Prices and Rents

Rents have been rising relatively quickly this year, but nowhere near as fast as they were climbing during 2007, when year-over-year increases hit over 8%. The latest data from the Bureau of Labor Statistics puts the Seattle area’s rent increases at 5%. Meanwhile, home prices (as measured by Case-Shiller) are up 12.5% over the same period.

While home prices and rents began 2013 roughly in balance, since March home prices have been rising much faster than rents. Here’s a look at the price to rent ratio:

Seattle-Area Home Price to Rent Ratio

Anywhere in the 25 to 30 range is fairly normal for the Seattle area. Since May the ratio has been over thirty, which suggests that in the near future we will see either an intensified climb in rents, a slight decrease in home prices, or most likely some combination of the two.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    Erik says:

    “Since May the ratio has been over thirty, which suggests either an intensified climb in rents, a slight decrease in home prices, or most likely some combination of the two.”

    I don’t see a slight decrease in Seattle house prices through July. Your last post clearly shows that housing prices are on the rise. That means that the increase is all rental prices increasing. Am I missing something? The first chart shows the CS HPI curve with a positive slope meaning prices are increasing in Seattle.

  2. 2
    Dave0 says:

    This a big reason why I live on a boat. I couldn’t imagine paying the sky-high rents right now. I also couldn’t imagine trying to compete with everyone trying to buy a house right now. I’m perfectly fine sitting on my Lake Union waterfront home (a.k.a. sailboat) watching all of this chaos from the sidelines.

  3. 3
    The Tim says:

    RE: Erik @ 1 – Sorry, I wasn’t clear. I meant that’s what we should expect to see in the next year or so, not that we have seen it already. I have updated the post to be more clear.

  4. 4
    David B. says:

    I remember 2006. There was this rah-rah Seattle-area real estate agent preaching the “housing always goes up” line on the Craigslist housing forum while I was renting and saying anyone who bought at those price-to-rent ratios would almost certainly be proven a fool. Yeah, that’s right, I’ll dump my nice apartment for some PoS next to the freeway just because of “pride of ownership” and “buy now or be priced out forever”.

    These days the ratio really isn’t all THAT bad. Sure, it’s above long-term averages, but it’s not as obscenely ridiculous as it was during the bubble days. I’m at the stage where if I see something I REALLY like, I’ll be inclined to make a serious offer on it.

  5. 5
    David Losh says:

    I’m just spit balling here, but it seems to me that if we have all of these new apartment buildings going up with these really, really high rents that it would look statistically like we are having massive rent increases.

    There is also the fact that with these new apartment buildings we also get the Executive suites investors buying up blocks of new rental units.

    It works like this: a company rents an apartment for $3000 a month, then rents the units for $1200 a week as an Executive suite. It’s quick and easy money per month.

    As these new buildings begin to get finished, and show some wear, and tear, I expect rents to go down. I know that isn’t much help today, but it’s a painful reality in the world of Real Estate.

    A mortgage payer may lock in a rental contract with the bank for 30 years at one payment price based on today’s rents, and investors may be counting on future rent increases, but I personally think we have a global housing glut.

    Now you see Erik, you’re not the only one who gets those thumbs downs. I’ve been whited out plenty of times for my opinions.

  6. 6
    David B. says:

    RE: David Losh @ 5 – It apartment buildings are being overbuilt (and that’s an if, yes, but they might just be right now), then it doesn’t matter what landlords think they deserve to get for places that fancy. Many will sit empty until the rent is lowered enough to make them attractive (which will in turn exert downward pressure on the less-upscale units).

  7. 7
  8. 8
    No Name Guy says:

    David at 5 mentions at point made in one of the recent articles. Rental MIX may be coming into play in terms of the over all rental market, just as the mix in houses affects the CS index.

    One of the recent articles stated that the new units DID rent for higher prices than older stock – for the reasons stated – all shiny new with new just right for today features, etc.

    The articles also stated that there was a knock on effect however, in that older units were able to up their rents as well, but were cheaper than the shiny new stuff.

    That said, I’m still sticking with my hypothesis that all this new supply will eventually cause rents to fall on a supply and demand basis. Driving through Ballard last weekend, there were lots of new units under construction. There are only so many people to fill them all up once they come on line.

    The Tim – it sure would be interesting if there was some apartment data available to over lay on those rental prices, on how many new apartments were coming on line. Calculated Risk has national level housing starts (SFR and multi) and the apartment vacancy rates. Is there comparable Seattle metro available?

  9. 9
    mike says:

    I see some huge differences between the rent/own situation in Seattle now vs during the bubble. Back in 2005, apartments were converting to condos at a furious pace and it caused the supply of both rental properties and overall housing units to decrease rapidly IE: less rentals, as much of the new building was condos. Thousands of renters were all forced to find new digs as their building was emptied out for remodeling. While the buildings were being remodeled and resold those units were effectively removed from the housing supply, sometimes for up to a year before the new owner moved in.

    Buying was also a lot easier back then because of the many ‘affordability’ programs available on the private market. With loans harder to get, hardly any of these new buildings are being sold as condos and I don’t recall seeing any condo-conversions for at least 5 years. By 2008 many/most of the substantially vacant condos had converted to apartments.

  10. 10
    whatsmyname says:

    This seems like kind of a weak correlation for predictive purposes.
    Especially these last 10 years,
    Especially when house prices are moving quickly.

    Please pardon my bad manners for mentioning it.

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