Zillow Reports U.S. Rentals Continue to Outshine Housing Market, Property Values Still Plagued By Foreclosures

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According to the February Zillow Real Estate Market Report, median rents rose 2 percent from February 2011 to February 2012, but home values continued to fall, declining 4.5 percent during that period.

The Zillow Rent Index (ZRI) showed year-over-year gains for nearly 68 percent of metropolitan areas covered by the ZRI. By contrast, only 8 percent of metro areas covered by the Zillow Home Value Index saw home values rise.

The rental market remains strong, especially in areas that continue to experience consistent home value declines. Chicago metro rents, for example, increased 8.6 percent over the past year, in comparison to an 11 percent fall in home values over the same period. In the Philadelphia metro, rents are up 14.8 percent annually

while home values have fallen 5.4 percent year-over-year.

Foreclosures continue to be a key driver in keeping home values down. Foreclosure re-sales made up 20.3 percent of all sales in February, slightly higher than their previous peak of 20.2 percent of all sales in March 2011. Foreclosure re-sales made up 19.1 percent of all sales in February 2011.

Foreclosure re-sales are strongly affected by seasonality, and January and February are typically months with high percentages of foreclosure re-sales.

"We have made it through the worst of the housing recession with a bottom on the horizon, but the deep backlog of foreclosures, elevated negative equity and high unemployment are all still obstacles on the road to recovery," said Zillow Senior Economist Svenja Gudell. "The rental market remains a bright spot in the housing market, where many markets, especially hard hit ones, are experiencing significant annual rent appreciation and drawing the attention of investors. Converting distressed and vacant properties into rental units will reduce the oversupply of homes and speed up the recovery process."

In the short term, national monthly rents declined slightly from January to February, falling 0.5 percent to $1,212. Home values fell 0.5 percent during the same period to $145,400.