How Falling Inventory Has Led to Hurried Home Buying

U.S. home inventory tumbled 8.9% over the year in the second quarter of 2017, and has now fallen for nine consecutive quarters. Inventory today is a full 20% less than it was five years ago. As a consequence, homes are being snapped up by homebuyers at the fastest clip since we started keeping track in 2012.

For example, 57% of homes in 2012 were still on the market after two months while today that number stands at 47%.

In this edition of Trulia’s Inventory and Price Watch, we examined how shrinking inventory affects how quickly homes come off the market. We find that, on average, metros with the largest decreases in inventory over the past five years have also seen significantly fewer homes on the market after two months.

The Trulia Inventory and Price Watch is an analysis of the supply and affordability of starter homestrade-up homes, and premium homes currently on the market. Segmentation is important because home seekers need information not just about total inventory, but also about inventory in the price range they are interested in buying. For example, changes in total inventory or median affordability don’t provide first-time buyers useful information about what’s happening with the types of homes they’re likely to buy, which are predominantly starter homes.

Looking at the housing stock nationally and in the 100 largest U.S. metros from Q2 2012 to Q2 2017, we found:

  • Nationally, the number of starter and trade-up homes on the market has decreased substantially, falling 15.6% and 13.1% respectively, during the past year, while inventory of premium homes has fallen 3.9%.
  • The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach of homebuyers. Starter and trade-up homebuyers need to spend 3.1% and 1.7% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.9% more of their income;
  • Across metros, falling inventory is strongly correlated with how long homes stay on the market. On average, the more a market’s housing inventory has fallen over the past five years the fewer share of homes are still on the market after two months. Homes are moving fastest this spring in San Jose, Calif., and Oakland, Calif, where fewer than 21% of homes are still on the market after two months.

No Inventory Relief This Spring

The spring home buying season has not brought much relief for inventory constrained homebuyers. Although we’ve seen a healthy but seasonal uptick in inventory over last quarter, inventory has fallen 8.9% over the past year and for the ninth straight quarter. In addition:

  • The number of starter homes on the market dropped by 15.6%, while the share of starter homes dropped from 23% to 22.1%. Starter homebuyers today will need to shell out 3.1% more of their income towards a home purchase than last year;
  • The number of trade-up homes on the market decreased by 13.1%, while the share of trade-up homes dropped from 23.2% to 22.1%. Trade-up homebuyers today will need to pay 1.7% more of their income for a home than last year;
  • The number of premium homes on the market decreased by 3.9%, while the share of premium homes increased from 53.8% to 55.8%. Premium homebuyers today will need to spend 0.9% more of their income for a home than a year ago.

Falling inventory has also pushed affordability of homes across all segments to new post-recession lows. Starter homebuyers have been hurt the most, with the median buyer needing to dedicate 39.1% of their monthly income to buy a starter home – a 3.1 percentage-point increase from last year and up from 31.7% in Q2 2012. Though trade-up and premium homes are still relatively affordable, the share of income these buyers would have to spend on such homes also reached post-recession highs. For example, trade-up and premium home buyers would need to spend 26% and 14.3% of their income to buy a home, respectively, but both are up from 21.5% and 11.7% just five years ago. Clearly, the inventory crunch hasn’t helped housing affordability across the U.S.

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