Dearth of Inventory, Price Hikes Pose Challenges for Home Shoppers

Homebuyers are facing another challenging shopping season to navigate, as another industry report reveals what we continue to see: record-breaking low inventory and unprecedented price growth.

According to the January Zillow Home Value Index:

  • Home values rose 1.5% from December to January to $325,677, up 19.9% from a year ago.
  • The annual growth rate represents an all-time high over the last 20 years, and the monthly pace continued to accelerate after reaching a low of 1.2% in November.
  • If monthly price growth were to hold steady at January’s pace, annual growth in 2022 would be 19%.
  • Home values are up 30.9%—nearly $77,000—since January 2020, on the eve of the pandemic.
  • Monthly home value growth accelerated from December to January in 38 of the nation’s 50 largest metropolitan areas.
  • Among these, the fastest monthly growth was in Nashville, San Diego and Las Vegas, all at 2.5%.
  • The slowest growth was in Milwaukee, New York and Washington, D.C., all at 0.7%.

Inventory plunges to record lows

  • Active inventory dropped 13%—the second straight double-digit monthly drop.
  • Though inventory typically dips in the winter, active inventory is now 22% lower than a year ago, and 42.4% lower than January 2020.
  • A sharp cutback in new listings hitting the market—down 19% from December—was the main cause.
  • January’s flow of new listings was lower than any month since at least the beginning of 2019.

Existing home sales
According to the report, sales of existing homes in January are expected to be somewhat lower than in December and January 2021. But at a seasonally adjusted annual rate, sales are starting the year roughly on par with full-year 2021 levels, which was the best year for existing sales since 2006.

New home sales
New home sales took a breather late last year as builders worked to complete the backlog of orders they booked in 2020, when they sold the most new homes in 14 years.

Rent growth slows to a crawl

  • Monthly rent growth slowed dramatically, falling from 0.9% in November and December to a nearly flat 0.1% in January, the lowest rate seen since October 2020.
  • Year-over-year rent growth was 15.9%, slightly lower than a record-high 16% in December, making typical rent $1,856 per month.

The takeaway:

“Home buyers today are making bids and closing deals despite some of the most challenging conditions ever: record-few homes for sale to choose from, priced at double-digit gains from last year, financed at sharply rising mortgage rates,” said Jeff Tucker, senior economist at Zillow. “It remains to be seen how long buyers can weather this storm, and how long homeowners will watch values rise before deciding to list. Neither have blinked yet. Expect another sizzling hot spring shopping season.”

He added: “If supply chains can untangle, builders should be able to complete and sell more homes this year than last.”

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