Q1 2016 Market Report: Tight Inventory, Rapid Price Growth

• There are 5.9 percent fewer homes for sale in the U.S. than there were a year ago.

• There are 10.4 percent fewer entry-level homes for sale in the U.S. than there were a year ago.

• Low supply is driving up home prices among entry-level homes, which are often sought after by first-time buyers.

Faced with rapidly appreciating home values and a dwindling inventory of homes for sale in the critical entry-level and mid-market home segments, first-time and move-up home buyers – typically the housing market’s bread-and-butter – are likely in store for a tough spring home shopping season.

Nationwide, median home values rose 4.8 percent year-over-year in March and 1.1 percent over the course of the first quarter, to a Zillow Home Value Index of $186,200, according to the first quarter Zillow Real Estate Market Report. And while overall U.S. home values continue to grow at a modest (though slowly accelerating) clip, home values are rising the fastest among entry-level and mid-market homes in a large majority of the nation’s biggest housing markets.

A number of factors are driving this growth, and many are positive, including strengthening household formation, continued growth in jobs and wages, and general confidence and optimism in the overall value of homeownership, especially among younger generations. But the likeliest contributor to this rapid growth in the bottom and middle is worrisome: There is a real lack of homes to buy in these segments.

Brutal at the Bottom…
Overall, there were 5.9 percent fewer homes available for sale nationwide at the end of the first quarter than there were a year ago. But the number of homes for sale in the bottom and middle thirds of the U.S. market each fell by 10.4 percent, compared to a relatively scant decline of just 1.9 percent in the top third of the market.

This is leading to a situation in which the majority of homes for sale in many markets are more expensive homes not typically sought by budget-conscious entry-level and younger buyers. In all 35 of the nation’s largest markets and the U.S. as a whole, more homes are available for sale in the top-third of the market than in either of the other segments. In nine of those large metros, top-tier homes make up more than half of all homes available for sale.

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