If the market feels a little competitive this spring, it’s not just your imagination. Home values are rising, inventory is continuing on a downward spiral, and, according to Zillow, “This year’s home-shopping season will be one of the most competitive ever recorded.”
Home values ascended 8 percent year-over-year in March, while the number of homes for sale dropped by nearly 9 percent, according to data released by Zillow. The sparse inventory that is available is concentrated at the high end, pricing out many first-time buyers.
Alongside these prohibitive market metrics, rental rates across the nation are also on the rise, climbing 2.7 percent year-over-year in March, according to Zillow.
"This year's home-shopping season is shaping up to be even crazier than last, and sadly, the group that will have the hardest time is first-time and lower-income homebuyers," said Zillow Chief Economist Svenja Gudell.
The markets that experienced the greatest increases in home values year-over-year in March were San Jose, where home values jumped 25 percent to a median home value of more than $1.25 million; Las Vegas, where values climbed 17 percent to $260,161; and Seattle, where values are up 15 percent to a median $492,227. These values compare to a national median home value of $213,146.
Nine of the 35 largest metros in the United States experienced double-digit home value growth over the past year, according to Zillow’s Home Value Index.
Helping drive this ascension in home values, of course, is declining inventory, which has been ongoing since early 2015, according to Zillow.
Not surprisingly, the greatest home value increases took place in the same markets where inventories experienced their steepest declines. San Jose posted a 26 percent drop in inventory over the year, followed closely by Las Vegas with a 23.5 percent descent in housing inventory.
These declines were outpaced only by Washington D.C., which led the nation with a 27.3 percent descent.
In all, inventory deteriorated more than 20 percent in six of the 35 largest metros. After Washington, D.C., San Jose, and Las Vegas were Indianapolis; Columbus, Ohio; and Dallas.
More than half—about 51 percent—of homes available for sale are what Zillow considers “high-end,” and only 22 percent are what Zillow considers “entry-level.”
In 13 of the 35 largest metros in the United States, at least 50 percent of housing inventory is considered “high-end.”
Buyers at the low end of the market “will be competing for the few entry-level homes on the market, which are also the ones appreciating the fastest because of extremely high demand,” Gudell said.
She sees signs of relief down the road, saying, “There are some signals a shift may be coming—construction activity is at its highest point in a decade—but buyers shouldn’t hold their breath.”