The real estate market, like all markets, is sensitive to changes in supply and demand. This month, Zillow is releasing a new inventory metric to help shed light on the available housing inventory across the country.
The methodology for the inventory metric is straightforward. Each week, a count of the number of single-family, condominium and cooperative housing units listed for sale on Zillow is taken. This listing count includes standard, REO, and FSBO listings, but excludes pending, spec, planned, auction, and new construction as well as Zillow’s Make Me Move and Coming Soon listings. The median of these values within a month is calculated as the monthly value and a seasonally adjusted value is reported using a standard STL procedure. This seasonally adjusted series is then smoothed using a three-month rolling average.
Currently the metric is reported for 1,615 counties and 648 metropolitan regions. No single source covers all real estate listings, but Zillow’s inventory metric covers the vast majority of available listings. We believe the movements in the series are representative of the trends in the housing market.
Figure 1 shows the level and the smooth seasonally adjusted time series, as well as the January 2014 values for metro regions. It is interesting to note which markets in the United States experience seasonality. Chicago, Minneapolis, and Syracuse all typify the pattern of winter lows and summer highs seen in many northern markets. In contrast, warmer markets like Miami and Phoenix experience almost no seasonal movement.
Figure 2 shows the availability of for-sale inventory over time since the housing bubble burst. In 2010, inventory levels slowly grew, reaching a national peak of 2,011,945 homes (seasonally adjusted) by April 2011. However, inventory levels then started to decrease nationwide. Advancing the slider shows how the number of listings dropped in nearly every metro, reaching a national low of 1,280,222 homes (seasonally adjusted) in December 2012. 2013 was a year spent waiting for inventory levels to start growing again, and many metropolitan regions have now begun to see their inventory levels turn around. Among many others, Pittsburgh, Sacramento, Phoenix and Orlando all posted annual increases in January 2014, while markets such as San Diego and Chicago are still waiting for a full inventory rebound.
One of the primary drivers of inventory is the number of homes that are in negative equity. As discussed in Zillow’s 2013 Q3 negative equity release, among homeowners hoping to sell their home, negative equity forces them to either bring money to closing or undergo a short sale. As a result, more people who would otherwise choose to list their home decide not to or cannot afford to, thereby constraining inventory. Many markets that experienced significant negative equity also saw significant annual declines in the number of homes for sale. Figure 3 demonstrates this trend through time. Note that the scatterplots display negative equity, a quarterly metric, versus the annual change in inventory for the last month of that quarter.
The Miami metro, for example, had more than 46 percent of mortgage holders in negative equity in the first quarter of 2012, with a corresponding annual drop in seasonally adjusted inventory of nearly 42 percent. Highlighting Miami in the table and advancing the time slider will show the metro moving up and to the left as homes appreciate, negative equity is eased, and inventory constraints are loosened. Richmond, Bakersfield, and San Jose are also good examples of this pattern. By 2013 Q3, most markets saw inventory start to increase as negative equity declined. Even markets such as Las Vegas that had not yet seen annual increases in inventory saw monthly increases in inventory. These markets should soon begin to see annual rebounds.
Figure 3 demonstrates one other important fact. The relationship between negative equity and inventory has been central to understanding the housing market since 2012, both in individual markets and on a national level. While we expect this to continue, particularly in regions still hard-hit by negative equity, on a national scale the power that negative equity has to influence inventory changes is decreasing as fewer people are forced to consider the prospect of a short sale when deciding whether or not to list their home. Assuming that negative equity continues its downward trend, it is likely that other variables will more strongly influence inventory moving forward.