Inventory Jumps Again, as the Market Continues to Sizzle (June 2021 Market Report)
- For-sale inventory saw meaningful recovery for the second month in a row, improving 3.1% over May.
- Home value appreciation reached new record highs for both monthly and annual growth.
- Rents grew 7.1% year-over-year, easily the fastest pace rents have been growing since at least 2015.
The number of homes available for sale rose for the second straight month in June, an indication the market may be beginning to find more balance after long tilting heavily towards sellers, according to the June 2021 Zillow Real Estate Market Report. But inventory remains low, and demand is still strong, sending home value appreciation to new record highs for both monthly and annual growth.
Intense demand for houses over the course of the pandemic sent inventory plummeting, bottoming out in April down 33% from the year prior — serving to ramp up competition for homes and elevating prices. But inventory has begun to recover since then, up more than 3% month-month in both May and April (up 3.9% from April to May, and 3.1% in June from May). In June, inventory was down 29.2% from June 2020.
Even so, the market will need to see a lot more gains in inventory over a lot longer period before the addition of new supply helps to truly balance the market. In the meantime, relentless demand pushed home value appreciation into new territory again in June. Home value appreciation broke annual records for the second month in a row, growing 15% year-over-year in June – the highest in Zillow data reaching back through 1996. The U.S. Zillow Home Value Index (ZHVI) reached $293,349, up $38,341 from a year ago. Annual appreciation among the nation’s top 50 metropolitan areas ranged from New Orleans’ quite healthy 10.1% to Austin’s astronomical 36.8%.
Monthly growth also accelerated further, from a revised 1.8% in May to 2% in June, also a new record high in the series history; growth in each of the past four months has been far above the pre-pandemic high of 1% set in the summer of 2005. Monthly home value growth among major metros ranged from 1.1% in New Orleans to an eye-watering 5.1% in Austin, ahead of San Jose at 3.7% and Las Vegas at 3.6%. Monthly growth accelerated in 48 of the top 50 metros and held roughly steady in two (Pittsburgh and Memphis).
Rent growth maintained widespread momentum in June, with the Zillow Observed Rent Index (ZORI) up 1.8% month over month, pushing typical U.S. rents to $1,799/month in June. A strong recovery in the rental market over the past few months pushed year-over-year rent growth up 7.1% — the largest annual increase in the series’ history reaching back to 2015. Even discounting a weakened market last year, rents have risen 5.1% since March, the fastest quarterly growth in Zillow’s data. The fastest monthly rent growth was seen in Las Vegas (3.6%), Tampa (3.4%), Austin (3.4%), and Phoenix (3.3%). Sunny, relatively affordable areas have led home value appreciation over the past year, and are now seeing outstanding rent growth as well.
Looking Ahead
Current home value appreciation continues to set new records and is expected to continue to accelerate through the summer. But looking ahead a full year, Zillow expects a slightly more sedate pace of growth than in prior months, as new inventory continues to come online and things settle back into a more familiar pre-covid pattern — which should also serve to boost overall home sales activity in a more balanced market.
Zillow economists expect home values to increase 6.3% over the next quarter (June-September), by 20.3% through the end of this year (December 2020-December 2021) and by 13.2% through the twelve months ending in June 2022. The latest quarterly home value forecast is an upward revision from last month, when we expected 6.1% growth from May-August. But the 12-month forecast has been revised slightly downward from expectations of 14.9% growth between May 2021 and May 2022. The shorter-term forecast continues to be influenced by the current torrid pace of home value growth, but over the longer-term the forecast has been recalibrated to account for a closer return to pre-Covid conditions in the next 7-12 months.
In part because of continued gains in inventory that are likely to give buyers even modestly more choice and help smooth out what is currently a difficult buying environment, our sales forecast for the rest of this year and the first half of next year has strengthened since last month. Zillow expects a total of 6.02 million existing home sales in 2021, up 6.6% from 2020 (on its own the strongest year for existing home sales since 2006) and higher than the 5.91 million total 2021 sales expected in our prior forecast. Recent increases in both pending home sales volume and home purchase mortgage application activity also contributed to our improved 2021 sales outlook.
Despite recent gains, inventory remains incredibly low (especially at lower price points) and the current sellers’ market is unlikely to turn overnight. Rapid home value growth continues to be a hallmark of this market, contributing to mounting housing affordability concerns and an overall challenging environment for buyers. But conditions are nevertheless slowly changing, bringing more balance into the market that is likely to benefit both buyers and sellers. And buyers themselves are proving resilient and resourceful, applying for mortgages and making offers on homes at improving rates — a sign of continued confidence and strength in housing.
