U.S. housing inventory falls to 7-year low

The number of home listed for sale in the U.S. has fallen to its lowest point in at least seven years, and the shortage appears poised to get worse before it gets better. Inventory fell 7.5% annually to its lowest level in Zillow data that dates back to 2013, according to the December Zillow Real Estate Market Report.

At the end of 2018, signs of hope emerged that inventory had hit bottom and was starting to dig itself out of a hole. With the benefit of hindsight, it's clear that the inventory gains in late 2018 were a false dawn due largely to a temporary stock market dip and spike in mortgage rates, not the start of a sustained trend. Now, with mortgage rates lowered again and consumer confidence holding steady, demand shows no signs of abating and eager buyers are snatching up the few homes that are made available.

Inventory is down year-over-year in 31 of the 35 largest U.S. housing markets, with San Antonio (up 8.1%), Detroit (up 7.6%), Atlanta (up 1.8%) and Chicago (up 0.6%) the only exceptions. Seattle (down 28.5%), San Diego (down 23%) and Sacramento (down 21.7%) saw inventory shrink the most in 2019.

As inventory continues to fall, the slowdown in home value growth may be coming to an end as high demand is putting price pressure on the relatively small number of homes that are on the market. The rate of annual home value growth slowed once again from November, marking 20 consecutive months in which growth has slowed. But the gap between November and December is the smallest one-month drop since the slowdown began.

U.S. home values grew 3.7% in 2019 to $244,054, down from 3.8% year-over-year growth last month. Home values grew the most in Phoenix (up 6.5%), Columbus (up 5.9%) and Charlotte (up 5.9%) in 2019. Home values fell in just two markets - San Jose (down 6.4%) and San Francisco (down 1%).

"The end of 2019 looks a whole lot different than we might have expected at the beginning of the year," said Skylar Olsen, director of economic research at Zillow. "A year ago, a combination of a government shutdown, stock market slump and mortgage rate spike caused a long-anticipated inventory rise. That supposed boom turned out to be a short-lived mirage as buyers came back into the market and more than erased the inventory gains. As a natural reaction, the recent slowdown in home values looks like it's set to reverse back to accelerating growth right as we head into home shopping season with demand outpacing supply."