For-Sale Inventory Continues to Fall, But Shortages May Be Easing
In past quarters, we’ve been able to spotlight the significant reduction in the number of available homes for sale in every price tier in almost all major metropolitan areas across the country. While inventory is still down from last year, we also see evidence that this inventory tightness is easing in many markets as home values rise and the percentage of homeowners trapped by negative equity drops.
Number of homes for sale down from this time last year
In the top 100 major metropolitan areas, we counted homes listed on Zillow within three price tiers (bottom, middle and top) on Feb. 24, 2013. By comparing these counts to those same numbers if measured on Feb. 24 last year, we can determine the drop in for-sale inventory overall, as well as the reduction within three different price tiers (top third, middle third and bottom third) and metropolitan areas.
The supply of homes for sale across the nation is down 16.6% from late February last year with the greatest inventory reductions among top-tier properties (20.5% lower), followed by middle-tier homes (17.2% lower) and then bottom-tier homes (9.1% lower). Thirty of the 99 metros analyzed also exhibited this pattern. A selection of the largest of these includes Chicago (-16.2% overall; -19.8% among the top tier), Miami-Fort Lauderdale (-6.9% overall; -20.9% among the top tier), Dallas-Fort Worth (-20.7% overall; -24.6% among the top tier), and Philadelphia (-18.1% overall; -25.2% among the top tier). Only 14 metropolitan areas covered in this analysis showed the opposite pattern, where the greatest change in the supply of homes on the market is among bottom-tier properties. Prominent metros in this group include Los Angeles (-45.7% overall; -56.8% among the bottom tier), Sacramento (-48.0% overall; -61.5% among the bottom tier), San Francisco (-40.9% overall; -51.0% among the bottom tier), Phoenix (-26.4% overall; -42.2% among the bottom tier), and Atlanta (-32.1% overall; -44.3% among the bottom tier). All 11 California metros Zillow examined are among the 20 metros with the greatest overall drop in homes for sale from February of last year. The metros that exhibit the largest drop in bottom-tier inventory are also among the metros that have seen heavy investor activity. Given the continually strong rental market, investors have been purchasing and converting low-end properties to for-rent units.
In October, only Little Rock, AR had more homes for sale across all tiers than in the previous year (+0.4%). Now however, five metros examined have more homes on the market than last year: El Paso (+18.5%), Albuquerque (+8.1%), Little Rock (+7.7%), Fort Meyers, FL (1.5%), and Youngstown, OH (+0.2%). Breaking the sample of homes down into price tiers reveals that most inventory increases are driven by bottom- and middle-tier categories. In 14 metros the number of bottom-tier homes for sale has actually increased from last year. In 12 metro, an increase is seen among middle-tier homes. In only two metros is the inventory of top-tier homes higher than last year. This is potentially due to the slow, but steady stream of REOs that are being released.
Inventory tightness is easing
Even though the number of available homes is down from last year, there is evidence of market adjustment. Inventory tightness in many areas has contributed to increases in home values. Yet as home values rise, the negative equity held by homeowners decreases, freeing some and allowing them to finally sell their homes and recover more than the mortgage owed. Other drivers of the increase in available inventory likely include REOs exiting the foreclosure pipeline and increased confidence in the overall housing market. We can observe this relaxation in inventory tightness through the difference in the year-over-year changes in inventory[1]. For example, currently the overall supply of homes is down 16.6% from Feb. 24 last year. One month ago, on Jan. 23, we would have said overall supply is down 17.5% from Jan. 23 last year. This leads us to conclude that the tightness has relaxed by 0.9 percentage points (-16.6 – -17.5 = +0.9). So while inventories are still down from last year nationally, the reduction has let up to a small degree. This easing of inventory tightness is no small matter in some markets, however. In January, Phoenix for-sale inventory was down 35.5% annually across all tiers. Currently, Phoenix is only down 26.4% compared to last year, leading to a Relaxation in Inventory Tightness measure of 8.7 percentage points.
For further detail on all of the metros we covered in this analysis, see the interactive visualization below.
[1] Month-over-month changes in the count of for-sale homes would not offer us this same interpretation, as this would introduce seasonality.
