It’s well known that a lack of homes for sale is limiting home buyers’ choices this home shopping season. But this inventory shortage is also contributing to another home buying hurdle – along with limited options, buyers also have increasingly limited time to make a decision on a home purchase.
It’s well known that a lack of homes for sale is limiting home buyers’ choices this home shopping season. But this inventory shortage is also contributing to another home buying hurdle – along with limited options, buyers also have increasingly limited time to make a decision on a home purchase.
The typical U.S. home sold in May (the latest month for which data is available) spent just 78 days on the market, more than a week less than the same time last year (86 days), according to the Q2 2016 Zillow Real Estate Market Report (figure 1). And not only is the time a home spends on the market currently much less than recent months, it’s also well below historic norms. Since the beginning of 2010, the long-term monthly average of the time a typical U.S. home spent on the market before selling is roughly 111 days.
Homes are selling more quickly this year than last in 27 of the nation’s 35 largest metro housing markets – in some cases, much more quickly. In Charlotte (70 days), Philadelphia (98 days) and Pittsburgh (97 days), homes are selling more than two weeks faster this spring compared to a year ago. In the eight markets where homes are taking longer (or at least as long) to sell this year than last, the phenomenon may be more attributable to the fact that realistically, homes in those areas can’t sell much more quickly. In seven of those eight markets, homes are selling more quickly than the current national average of 78 days (Miami, at 103 days, is the lone exception).
Markets in the Bay Area and Pacific Northwest epitomize this need for speed. In San Francisco and San Jose, the typical home sold in just 43 days in May, the fastest-moving large markets in the nation. In Seattle homes sold in 47 days, and in Portland homes sold in 51 days. Considering it typically takes a minimum of 30 days (and often 45 days or longer) for a home sale to close once an initial offer is accepted, the window a buyer realistically has to look at a home and decide whether to make an offer in these markets is astoundingly brief.
This increasingly fast-moving market is largely a product of increasingly tight inventory. The number of homes for sale nationwide as of the end of Q2 was down 4.7 percent from the same time a year earlier, and was down year-over-year in 24 of the largest 35 metro markets. The number of homes for sale nationwide has fallen on an annual basis for the past 17 straight months, and in 46 of the past 55 months (figure 2).
And even in those large markets where inventory has risen over the past year, the number of homes for sale remains well below recent highs. In San Antonio, for example, inventory was up a big 20.4 percent year-over-year at the end of Q2 – but still down 61.5 percent from its June 2011 high. In San Jose, inventory rose 15.2 percent in June compared to a year earlier, but is still 61.1 percent below March 2011 highs.
When there are so few homes on the market in the first place, it makes sense that those that are available would be scooped up more quickly. But in addition to the speed of the market being a product of limited inventory, that speed may also be contributing to that scarcity of inventory too. Potential sellers might love the attention their home will get once listed – and the chance for a windfall profit if a bidding war breaks out over it. But many of those sellers also have to turn around and become buyers. They may end up in a bidding war of their own once they try to buy in this environment, if they can even find a suitable home to begin with. Instead, it’s likely that many current homeowners who don’t have to sell are choosing to stay put rather than enter the fray – which in turn only contributes to tighter inventory.
It all adds up to a very competitive market for buyers, and a fast-moving (and potentially very lucrative) market for sellers. In an environment where one may have only a few days to decide to make an offer on a home, it’s critical that buyers and sellers enter the market prepared and with clear eyes, and to resist the temptation to settle for a home that may not suit their needs in the interest of just buying a place. It’s tough going out there, but the right home will become available for those that are patient but prepared to strike fast once it comes on the market.
The scarcity of inventory – and the rush to buy those homes that are available – is keeping the upward pressure on home values themselves. At the end of Q2, the median U.S. home was worth $187,000, according to the Zillow Home Value Index, up 5.4 percent from a year ago and 0.4 percent from May (figure 3). National median home values have risen on an annual basis for 47 consecutive months.
Home values rose year-over-year in June in 34 of the country’s 35 largest metro markets. Annual home value growth was faster than the U.S. average in 23 of the largest 35 markets. Among those large markets, annual home value growth in June was fastest in Portland (up 14.8 percent), Denver (12.7 percent) and Dallas-Fort Worth (12.1 percent). Annual growth was slowest in Indianapolis (down 4 percent), Washington, D.C. (up 2 percent) and Baltimore (2.2 percent).
With all the attention paid to rising home values, tight inventory of homes to buy and the increasing speed of the home purchase market, it’s critical not to lose sight of the rental market. In June, national median rents rose 2.6 percent year-over-year and 0.1 percent from May, to $1,409 per month, according to the Zillow Rent Index (figure 4). Similar to home values, on an annual basis, U.S. rents have risen or remained flat for 47 consecutive months.
Rents rose year-over-year in June in all 35 of the country’s largest markets. The annual pace of rental growth was fastest in June in Seattle (up 9.7 percent), Portland (9 percent) and San Francisco (7.4 percent). Interestingly, rents are growing so quickly in Seattle that they grew faster in one month (up 1.1 percent in June from May) than in an entire year in the Chicago (up 0.9 percent from June to June), Washington, D.C. (0.9 percent year-over-year), Cincinnati (0.7 percent) and Indianapolis (0.7 percent) markets.
Looking ahead, Zillow expects national home values to continue growing, rising another 2.9 percent through June 2017 to a Zillow Home Value Index of $192,493. U.S. rents are also expected to keep growing over the next year, at a 2.6 percent pace through June 2017 to a Zillow Rent Index of $1,445.
Homes are selling faster than ever as the home shopping season hits its peak. For those looking for a home, be prepared to move quickly. Adding to this difficult buying environment is low inventory – there simply aren’t many homes to choose from. And while this looks like a good time to be a seller, potential move-up buyers may hesitate to list their homes and become buyers. Until the supply increases, it will remain a tough market to find a home.
For those looking to buy a home in a competitive market, here’s some tips to keep in mind:
