After Rebounding Prior to Home Shopping Season, Inventory Falls to Fresh Lows (September 2019 Market Report)

• For-sale inventory continued to fall in September after a mild recovery earlier this year. There are 102,112 fewer homes on the market in the U.S. than there were last year, a 6.4% year-over-year drop.

• The median home in the U.S. is worth $231,000, up 4.8% from this time last year. Accelerating quarterly growth indicates that we may be reaching a turning point after a cooldown over the past several months.

• Rent growth remains stable, up 2.2% year-over-year to $1,597.

A modest, short-lived bump in inventory spanning the end of 2018 and first couple months of 2019 was fully absorbed – and then some – over the ensuing 2019 spring and summer home shopping season amidst falling mortgage interest rates and unexpectedly strong home sales.

The number of U.S. homes for sale in September fell 6.4% year-over-year to slightly less than 1.5 million homes – the lowest level on record since at least 2013,[1] according to the September Zillow Real Estate Market Report.[2] It was the seventh straight month of annual inventory declines, following a six-month stretch of inventory growth between September 2018 and February 2019 that reversed a streak of 44 consecutive months of inventory declines dating to January 2015.

But even while inventory was growing, overall annual gains during that period were modest – year-over-year growth over the six-month span averaged only 0.9%. And those small gains were more than wiped out as the busy home shopping season began in earnest in the spring and continued throughout the summer months. Over the past seven months, the average annual inventory decline has been 1.9% — boosted by two steep declines in a row in August (-4.6%) and September.

Market conditions prevailing during the respective periods of inventory growth and decline may help explain the reversal. Last fall, mortgage interest rates spiked to multi-year highs and the stock market swooned amid trade uncertainty and in response to Federal Reserve rate hikes – a brief period of volatility that may have given some buyers pause. Fast-forward to the spring, and rates had again begun to fall and the stock market had clawed back much of its losses, which likely pushed buyers back into the market. Recent data on existing home sales and new housing starts show this bounceback in demand, with both showing unexpectedly strong results.

But the rise and fall in inventory has not been uniform across market segments. The inventory buildup and eventual decline was especially severe among entry level homes valued in the bottom one-third of all homes, which are often targeted by first-time and/or low-income buyers. Annual inventory growth among this group of homes reached 6.7% in October 2018, but fell 10.3% year-over-year last month. Buyers looking for homes in this price range are also less likely to see listings with a price cut – 12.7% of bottom-tier homes had a price cut in September, compared to 15.7% of middle-tier homes and 17.3% of top-tier homes.

Home Values: Slowing, Steadying

The ongoing inventory crunch comes as home value growth continues to slow and normalize after years of breakneck appreciation. Annual U.S. home value growth slowed for the ninth consecutive month in September, falling to 4.8% year-over-year – the lowest annual pace since April 2013. But the annualized rate of quarterly growth accelerated once again to 4.3%, further evidence that the market may be reaching a turning point after a sustained cooling-off period.

Home values fell again in San Jose (down 10.7% year-over-year) and San Francisco (down 2.5%). Indianapolis (up 8.1%), Austin (up 7.6%) and Charlotte (up 7.1%) were the fastest-growing large markets.

Rents: Remarkably Stable

The median U.S. rent rose 2.2% from a year ago to $1,597. The annual pace of U.S. rent growth has remained remarkably stable and has not dropped below 1.7% or risen above 2.4% at any point during the past 12 months. Rents are growing the fastest in Las Vegas (up 6.4% year-over-year) and Phoenix (up 6.2%), but were flat in Houston – the only one of the 35 biggest markets in the country where rents are not up from last year.

 

[1] Zillow's inventory data series dates to January 2013.

[2] The Zillow Real Estate Market Reports are a monthly overview of the national and local real estate markets. The data in Zillow’s Real Estate Market Reports are aggregated from public sources by a number of data providers for 928 metropolitan and micropolitan areas dating back to 1996. Mortgage and home loan data are typically recorded in each county and publicly available through a county recorder’s office. All current monthly data at the national, state, metro, city, ZIP code and neighborhood level can be accessed at www.zillow.com/research/data.

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