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Many of the hottest housing markets in the US are plagued with “crisis level” inventory shortages, which is accelerating the rate of home price growth.

While nationally there are 10 percent fewer homes for sale now compared to a year ago, in some hot markets there are up to 40 percent fewer homes for sale. That’s according to the December Real Estate Market Report released this week by the listing site Zillow.

The national median home price rose 6.5 percent annually to $206,300 in December — a record high — as inventory shrank 10 percent. Inventory has been falling on an annual basis for the last three consecutive years.

“Tight inventory fueled by a tight labor market and low interest rates propelled home values to record heights in 2017,” Zillow Senior Economist Aaron Terrazas says in the digital release.

Inventory is likely to remain the housing industry’s biggest challenge in 2018. Some 17 percent of real estate experts recently surveyed by Zillow expect a “meaningful” boost in homebuilding this year.

At the same time, in many of the country’s hottest markets, a major dearth of available homes for sale is driving up home prices at a faster rate. For example, in San Jose, CA, there were 41 percent fewer homes for sale in December 2017 compared to the previous year.

Worse still, the annual percentage change in inventory has been ”falling at a double-digit pace for the past nine months” in San Jose.

Annual inventory declines of over 20 percent were recorded in four California markets: Sacramento (22.5 percent), San Diego (20.2 percent), Los Angeles (22.2 percent) and San Francisco (27.1 percent).

Similarly in Las Vegas, NV, the second fastest appreciating housing market, according to Zillow, inventory fell 27 percent year-over-year in December.

And at the same time, home values were up 21 percent annually in San Jose and 14 percent annually in Las Vegas.

But there still could be reason to be cautiously optimistic about the 2018 housing market.

“Tax reform will put more money in the pocket of the typical buyer, but will limit some housing-specific deductions. Overall, this should increase demand for the most affordable homes and ease competition somewhat in the priciest market segments,” says Terrazas.

And, for many, the answer to finding more affordable housing will be to look further out into the suburbs and away from urban centers. While this will undoubtedly mean a longer trek to work, the suburbs are likely to offer more new homes for sale to Millennials aging into their homebuying years and families.

Click here to read the entire report.

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