For-Sale Housing Inventory Falls to New Lows With No Signs of Slowing (December 2019 Market Report)

• There were 1,489,417 U.S. homes listed for sale in December, 120,009 fewer than a year ago. This is a 7.5% annual drop, and the lowest level recorded by Zillow.
• The typical home value in the U.S. is $244,054, an increase of 3.7% from December 2018.
• Typical U.S. rent grew 2.6% year-over-year, to $1,600.

The housing market at the end of 2019 looked markedly different than the end of 2018, with a modest bump in inventory and an ongoing slowdown in home values a year ago giving way to inventory levels at their lowest on record and home value growth seemingly poised to re-accelerate.

The U.S. Zillow Home Value Index grew 3.75% in December from a year ago, and 0.3% from November, to $244,054, according to the December Zillow Real Estate Market Report. Annual growth in home values has slowed compared to the month prior in each of the past 20 months, cooling from an annual pace of 6.7% in April 2018 to the current pace reached in December.

Among the nation’s 50 largest markets, annual home value growth in December was fastest in Memphis (+7.2% YoY), Phoenix (+6.5%) and Columbus (+5.9%). Growth was slowest in San Jose (-6.4%), San Francisco (-1%) and New York (0.7%).

But annual U.S. ZHVI growth in December was just .04 percentage points slower than annual growth in November (from 3.79% to 3.75%), the smallest gap between two consecutive annual growth rates since the slowdown began. Realistically, there’s not a lot of room for that gap to get smaller, and it’s likely that we will soon see annual appreciation in an upcoming month re-accelerate and once again come in higher than the previous month, if only modestly.

Inventory in Freefall

And a major reason why home value growth may soon re-accelerate has to do with an incredibly tight inventory situation that, after a brief period of modest gains at the end of 2018 and into 2019, only got worse as the year wore on. There were 1,489,417 U.S. homes listed for sale in December (seasonally adjusted), the lowest level recorded since Zillow began tracking inventory data, down 7.5% from a year ago and 0.7% from November. Inventory levels have fallen year-over-year in each of the past nine months.

And as bad as the national numbers look, the situation is even worse locally – again, especially compared to the end of 2018. In December 2018, inventory was actually up year-over-year in 33 of the top 50 U.S. markets, and was down by 10% or more from the year prior in only three of those large markets. Fast-forward a year, and only four large markets had more inventory for sale this December than last, and 29 large markets (a majority of the top 50) experienced annual declines of more than 10%.

Inventory overall was down year-over-year in 46 of the 50 largest markets. For-sale inventory fell the most from a year ago in Seattle (-28.5% year-over-year), San Diego (-23%) and Sacramento (-21.7%). The four large markets in which inventory rose year-over-year in December were: San Antonio (+8.1%), Detroit (+7.6%), Atlanta (+1.8%) and Chicago (+0.6%).

What a Difference a Year Makes

A look at larger market forces happening a year ago versus now gives some sense as to why this shift has occurred. A year ago, the market was absorbing the triple threat of a government shutdown, a stock market swoon and mortgage rate spike. In retrospect, it appears that the inventory gains the market experienced in late 2018 were largely a product of these developments, spooking buyers and pushing more on-the-fence sellers to list for fear of waiting too long if a prolonged slump developed. This resulted in a relative boom in inventory (for the time) and a corresponding slowdown in home value appreciation.

But as 2019 wore on, the stock market shrugged off mounting trade volatility with China and military confrontation in the Middle East, and gained back its losses from year-end 2018 – and then some. The Federal Reserve made it clear that no rate hikes were on the horizon, and mortgage interest rates fell back to earlier levels near record lows. And buyers came back to the market, erasing what inventory gains were made earlier in the year and depleting the stock of homes available for sale nationwide to the lowest levels on record. Looking ahead to 2020, it seems clear that a combination of decently financially healthy consumers, low mortgage rates that keep affordability high and low inventory are set to re-ignite home value growth once again.

Rent Growth Remains Sustainable

In the rental market, the typical U.S. was $1,600/month in December, flat from November and up 2.6% from December 2018. Growth in the 2%-3% range as we’ve been seeing throughout the year is indicative of a sustainable market, largely in line with wage growth and a sign that rental supply is adequate to meet demand for the time being.

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