Now three-fourths of the way through 2016, the trends we’ve seen shaping the market throughout much of the year – namely, high demand for homes to buy and low supply of homes for sale, which have conspired to push up prices – look firmly entrenched.
Now three-fourths of the way through 2016, the trends we’ve seen shaping the market throughout much of the year – namely, high demand for homes to buy and low supply of homes for sale, which have conspired to push up prices – look firmly entrenched.
In September, the overall median number of homes listed for sale on Zillow (seasonally adjusted) fell 5.9 percent from a year ago, according to Zillow’s Q3 Real Estate Market Report, the 20th straight month of annual inventory declines. For-sale inventory has fallen on an annual basis in 49 of the past 58 months, rising only during a brief stretch from mid-2014 through early 2015.
This lack of inventory is exacerbated by strong demand from home buyers. Even as inventory has continued to fall, the level of home sales itself is up. In September, the number of existing homes sold rose a modest 0.6 percent year-over-year, according to the National Association of Realtors. In August (the latest month for which data is currently available), sales of newly constructed homes (which represent a much smaller portion of the overall home sales market) are up 20.1 percent year-over-year, according to the Census Bureau.
This kind of environment can’t help but put upward pressure on home values overall. For the 50th month in a row, the median U.S. home value rose year-over-year in September, to a Zillow Home Value Index of $189,400 – up 0.5 percent from August and 5.5 percent from a year ago. The 5.5 percent annual rate of appreciation recorded in September represents notable acceleration from prior months. Between December 2015 and August, annual home value growth never fell below 5 percent nor exceeded 5.3 percent in any given month. Annual home value growth in September was the fastest recorded since July 2014.
Given the tight supply and strongly rising home values, it’s logical to assume that more sellers would be listing their homes for sale, helping to ease the inventory crunch. The dam could yet break and more sellers could soon enter the market. But preliminary Zillow research indicates inventory isn’t necessarily falling just because fewer homes are being listed – in fact, the number of new listings coming to market each month has remained roughly constant over the past few years. Rather, the number of existing home sales each month has steadily increased – since January 2015 the number of existing home sales has risen year-over-year in all but one month – to the point where buyers are now outnumbering sellers. Look for more from Zillow research on this phenomenon coming soon.
One potential driver of buyers outnumbering sellers could also be related to the makeup of buyers themselves. Over the past year, almost half (47 percent) of people that bought homes were first-time home buyers, according to the recently released Zillow Group Consumer Housing Trends Report. And unlike repeat buyers, first-time homebuyers don’t list a home for sale when looking for another to buy, contributing to inventory constraints.
Regardless of the potential causes for sagging inventory at a time of rampant demand, the impacts on would-be buyers of all stripes – first-time or repeat – can be difficult. Competition for homes is high, and buyers have an increasingly limited time to make a decision on a home purchase. Bidding wars are commonplace in many housing markets across the country, as multiple buyers compete for the same home. According to the same survey, only 46 percent of buyers get the first home on which they make an offer, and the home search takes an average of 4.2 months.
Portland, Dallas and Seattle reported the highest year-over-year home value appreciation among the 35 largest metros nationwide. In Portland, home values rose almost 15 percent, to a median value of $342,100. Home values in Dallas and Seattle appreciated 12 and 11 percent, respectively. For the first time, the median home value in the Seattle surpassed $400,000 and is now at $401,100.
Looking beyond the median, annual home value growth at the bottom end of the market continues to far exceed growth at the top end. In September, the typical U.S. home valued in the bottom one-third of all homes was worth $107,100, up 7.4 percent from September 2015. The typical home valued in the top one-third was worth $344,000, up 3.9 percent year-over-year.
Stronger appreciation at the low end of the market is undoubtedly driven at least in part by more severe inventory shortages in that segment – likely related to large numbers of first-time buyers seeking less expensive homes to purchase and quickly scooping up those that do become available. The inventory of homes for sale in the bottom third of all homes fell 9.1 percent year-over-year in September, compared to a more modest 2.8 percent annual decline in the number of top-third homes for sale.
Put another way: Between January 2010 and September, bottom-third homes represented 26.4 percent of all homes listed for sale on Zillow, on average, in a given month. Today, that number has fallen to 25 percent. At the other end, over the same time, top-third homes represented 44.1 percent of all homes available for sale on Zillow, on average, in a given month. Today, that number has risen to 48 percent.
Among the largest 35 metros nationwide, overall inventory fell the most year-over-year in Indianapolis (-25.6 percent), Boston (-25.3 percent) and Kansas City (-22.5 percent). Inventory actually rose year-over-year in 11 of the 35 largest metros, posting the largest gains in Las Vegas (30.5 percent), San Antonio (23.5 percent) and Austin (14.9 percent).
Finally, it’s important not to lose sight of the rental market. In prior quarters, we’ve worried that rapidly rising rents, coupled with weak income growth, are helping to create a rent affordability crunch that threatens the ability of many current renters to save enough to transition into homeownership. Those concerns have not fully faded away, but recent trends are encouraging – incomes rose recently at their fastest pace in years, and growth in rents is slowing.
In September 2015, median rents were up 5.3 percent year-over-year. Fast forward one year, rental growth has slowed to a 1.5 percent annual pace. The median rent in the U.S. is now $1,403, according to the Zillow Rent Index. It will be very interesting to see over the next months and years if a friendlier rental market leads more would-be buyers to enter the purchase market, as renters can save more of their incomes for a down payment – potentially keeping the pressure on the difficult supply/demand forces noted earlier.
Seattle, Portland and Sacramento reported the highest year-over-year rent appreciation among the 35 largest U.S. housing markets. Rents in Seattle are up just over 9 percent and in Portland, rents are up 7 percent. For the fourth month in a row, Seattle has the fastest year-over-year rent appreciation among the 35 largest U.S. housing markets.
Looking ahead, Zillow expects national home values to continue growing, though at a slower pace, rising another 2.9 percent through September 2017 to a Zillow Home Value Index of $194,864. U.S. rents are also expected to keep growing over the next year, by 1.7 percent through September 2017 to a Zillow Rent Index of $1,427
Increasingly strong demand has been contributing to dwindling inventory across the nation. While building more homes would certainly be a step in the right direction, it’s healthy demand for for-sale homes that has been driving the market – another sign that the housing market is recovering nicely.
