• For-sale home inventory fell at its fastest pace in almost four years.
• People are moving less, which exacerbates tight inventory in a market with high demand and a lack of new construction.
• U.S. home values gained 7.4 percent over the past year to Zillow Home Value Index of $199,200.
• Rents rose 0.7 percent to a Zillow Rent Index of $1,416 per month. Among the largest metros, rents in Seattle and Sacramento, Calif. climbed the most.

One reason home values continue to soar is the scarce inventory of homes for sale – and that situation is only getting worse. In May, the number of homes on the market dropped at its fastest pace in almost four years. Homes stayed on the market for just 77 days in April, the most recent count available – and the fewest days Zillow has ever reported.

Home shoppers nationally had 9.4 percent fewer homes to choose from in May, compared to the same month a year ago. Declining inventory isn’t a new story. It’s fallen year-over-year in each of the past 28 months. What’s noteworthy is that inventory – already very low — could still fall at such a precipitous rate. The last time the market saw an annual drop like that was in August 2013, when inventory fell 10.2 percent.

The biggest inventory declines in May came in Columbus, Ohio, San Jose, Calif., and Minneapolis, which saw year-over-year drops of 30.1 percent, 29.2 percent and 28.7 percent, respectively.

Limited inventory drives up competition for homes that are on the market, sending prices higher than they otherwise might go. Seattle, Detroit and Tampa are good examples from May: They experienced severe inventory declines along with double-digit home value growth. Seattle’s number of homes for sale in May was down 22.2 percent and values were up 12.7 percent; Detroit’s inventory fell 18.7 percent while values rose 10.5 percent; and Tampa’s inventory dropped 17.6 percent while its values gained 10.5 percent.

Although inventory is down nationally and in most parts of the country, it did rise in a handful of metros, with the biggest annual gain in Austin, Texas (+23.9 percent). Two other Texas metros made the list of big inventory gainers in May: In Houston, it climbed 9.1 percent and in Dallas, 8.3 percent. Las Vegas inventory rose 19.2 percent, and Kansas City climbed 8.2 percent.

Limited inventory has been an increasing issue since the end of the Great Recession. With fewer homes for sale, competition becomes so fierce that people snatch them up quickly, and homes spend less and less time on the market. In April, homes stayed on the market for just 77 days, the fewest Zillow has ever reported and down from 82 days in May 2016 and 86 days in May 2015.

Why Is Inventory So Tight?

In recent years, several market forces have combined to make limited inventory an issue:

• High demand.
• A lack of new construction.
• Americans moving less than at any point in recent history, along with the growth of renting – instead of buying and selling – single-family homes.
• A self-perpetuating cycle in which the for-sale homes shortage means competition for those homes that are available is more intense, and homes get snapped up faster.
• At the same time as homes are snapped up more quickly, potential sellers – reluctant to turn around and become buyers themselves and face this intense competition – may decide not to list their homes for sale, further contributing to inventory shortages.

Read more about the inventory shortage.

National Median Home Value Nears $200,000

Low inventory is one factor that continues to drive gains in home values, as more buyers compete for fewer available homes and therefore help drive up prices. The U.S. Zillow Home Value Index was $199,200 in May, up 7.4 percent from last year and the 58th straight month of annual U.S. home value growth. Among the largest 35 metros, Seattle experienced the biggest annual gain in home values, climbing 12.7 percent to a median value of $440,100. The next-largest annual gains were in Dallas, where home values rose 11.2 percent over the past year to a median value of $209,200 – at the same time inventory climbed 8.3 percent (from a very low base).

The national median rent also continues to climb: U.S. rents have grown year-over-year in each of the past 57 months – but they’re growing at a much slower rate now than home values. The U.S. Zillow Rent Index rose 0.7 percent year-over-year to a median payment of $1,416 a month. The biggest rent increases were in Seattle, where median rent increased 5.7 percent to $2,127 a month, and Sacramento, where it was up 4.5 percent to $1,735 a month.

Mortgage rates^[i]  on Zillow ended May at 3.73 percent, the lowest level of the month. Mortgage rates hit a high of 3.90 percent on May 11. Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers on Zillow and reflect the most recent changes in the market.

Related:

• An Inventory Quandary: Three Theories for Why People Are Moving Less
• One-in-Five Renters Casts a Shadow on the For-Sale Housing Market
• Whole Foods & Trader Joe’s Provide a Healthy Boost to Nearby Homes

[i] Rates for a 30-year fixed mortgage.