Zillow: Low Inventory Limits Options for Home Buyers

Home values continued to climb in January, driven in part by low inventory of homes for sale, said Zillow Inc., Seattle.

Zillow said the supply of homes for sale in the U.S. is 8.6 percent below its level a year ago. Zillow Chief Economist Svenja Gudell said as the home shopping season approaches, lack of inventory continues to limit choices available to potential buyers, putting a strain on markets across the country.

The company’s Real Estate Market Reports said housing starts reached a three-month low in January, indicating that newly built homes will not be a significant benefit for buyers, either.

A restricted supply of homes for sale will mean increased competition for homes that are available, and bidding wars that can price out entry-level or first-time buyers,” the report said. “Low inventory, along with a strong job market has been driving up home prices, especially on the West Coast.”

Across the country, only a quarter of markets saw inventory increase over the past year. Among the largest metros in the U.S., Atlanta saw the largest increase in available homes for sale–6.8 percent. Home shoppers in San Diego have significantly fewer options–inventory there has dropped 30 percent.

“If you’re looking for a home or trying to sell, it’s important to know what kind of market you’re in,” Gudell said. “Hopeful buyers in a strong sellers’ market should be prepared to move quickly, since homes don’t stay on the market as long. In a buyers’ market, they can afford to take their time and be more selective. However, low inventory is a factor affecting the majority of the country, so buyers should be prepared for a limited selection as we enter the home buying season.”

According to Zillow’s latest Buyer/Seller analysisiv, markets that benefit sellers are mostly grouped in the West, where buyers are more likely to face bidding wars. Buyers will find themselves with more bargaining power in the East, in markets such as Philadelphia and Baltimore.

National home values rose 4.2 percent to a Zillow Home Value Index of $184,000. The pace of home value appreciation has increased for 10 straight months. Denver and Dallas continue to lead the way, with strong double-digit increases in home values. Rents, on the other hand, continued their recent trend of leveling off, growing 2.9 percent from last January. San Francisco was the only large metro to see double-digit rent increases.

The National Association of Realtors this week reported total existing home inventory at the end of January increased by 3.4 percent to 1.82 million but is still 2.2 percent lower than a year ago (1.86 million). Unsold inventory is at a 4.0-month supply at the current sales pace, up slightly from 3.9 months in December.