The primary reason that price increases are flattening out this year is the slow but steady return of a healthy real estate inventory. Supplies are reaching “normal” levels in many of the most expensive markets.
Real estate economies closely follow the laws of supply and demand. If demand is strong and supplies shrink, prices will rise until either demand falls and supplies recover―or both. We have been experiencing both falling inventories and slackening demand over the past two years, especially in the hottest coastal markets where prices for the least expensive homes have risen higher than what most local families can afford. As a result, many hotter markets are now overpriced, and they may experience price corrections soon.
Last year, momentum began to change. Inventories began to recover in most markets. Unfortunately, the inventory recovery is skewed toward more expensive homes. Luxury-priced homes never experienced supply shortages in many markets. Shortages of affordable homes for first-time homebuyers have kept many potential homeowners in rentals. Supplies of entry-level homes are recovering slowly, and shortages are still severe.
After two years of drought, inventories are now recovering.
Inventories rise and fall seasonally. They are highest in the spring and early summer months when buyers are most active. They decline during autumn and hit their lowest levels during the holiday period when many sellers have pulled their homes off the market.
February typically has one of the lowest inventory counts of the year because few sellers list their homes in the dead of winter. Yet, despite a winter that was brutal in the Midwest and Northeast, these ten major markets ranked among the highest in the nation for their inventories in 2018.
Active and New Listings
Year over Year Changes, February 2019
|Market||Active Listings||New Listings||Median Price||Days on Market|
Some of the nation’s hottest markets make this list, like San Francisco, Denver and San Jose. The median prices in only two of these top ten markets, Colorado Springs and Nashville, are anywhere near the national median price. The median totals of days on the market in February is listed to give a sense of how much faster homes are selling in these markets compared to the national median days on the market.
Inventory growth is occurring fastest in these expensive markets because prices are so high that few families can afford to buy in them. Also, prices have risen so much over the past few years that owners who sell now will do very well.
As inventories grow in these popular markets, the upward pressure on prices will decrease. In the balance of 2019, that means prices will continue to rise, but not as quickly as last year, and sales will increase. Since the distribution of new listings favors more expensive rather than less costly properties, most of this sales growth will occur in the middle and mid to upper price tiers.
New listing trends in February are relatively meaningless because most sellers have not yet listed their homes for the spring market. On the other hand, the double- and triple-digit increases in inventories suggest that markets are beginning the new year with larger supplies from last year. As spring arrives, look for these total inventory numbers to remain strong.
The five percent growth in national inventories a good sign. Most markets in the nation are now experiencing a healthy increase in listings. This year buyers will have more extensive selections of homes and sellers will not be in quite as strong a negotiating position as they were last year.
To find out more about inventory levels in your market, ask your real estate agent for a good analysis of local price and inventory trends over the past two years or so. Many local boards of Realtors publicize these trends from monthly MLS data.