Inventory is Making a Comeback in Some Markets

While a lack of inventory has been a major headwind for housing nationwide, there have been signs recently that the lack of supply is easing, according to data released by Trulia on Wednesday.

The bad news is that inventory continues to fall—in fact, in the second quarter, housing inventory fell for the fifth straight quarter, the longest streak of inventory decline since 2012 when the housing market bottomed out.

The good news, according to Trulia chief economist Ralph McLaughlin, is that nothing lasts forever—not even housing inventory shortages.

“Despite the decline, there are some signs housing supply is easing. Inventory in a few California and Florida cities is on the rise,” McLaughlin said. “What’s more, many of these markets have seen consecutive quarterly increases in available housing, suggesting an upward trend rather than a one-time blip.”

The latest edition of Trulia’s Inventory and Price Watch, analyzed the supply and affordability of starter homes, trade-up homes, and premium homes currently on the market in the largest 100 U.S. metros from July 1, 2015, to July 1, 2016, found that the number of starter and trade-up homes continues to fall at or near double-digit rates over-the-year. Inventory declines have been less for premium homes, which have seen a drop of less than 3.2 percent.

The ongoing inventory shortage is having an adverse effect on affordability; buyers of starter and trade-up homes need to spend 1.7 percent and 0.9 percent (respectively) of their incomes on housing compared to this time last year. Meanwhile, housing will cost premium homebuyers only 0.6 percent of their income.

“Low inventory has been the talk of the real estate world for much of the year, and rightly so,” McLaughlin said. “Inventory nationally, and in many of the largest markets, has been on the decline over the past several years, dropping by over 8 percent nationally since the third quarter of 2014. But there are signs that relief may be on the way for homebuyers in some markets.”

Twenty-one of the 100 largest markets analyzed experienced increases in inventory over the past year, and many of those posted double-digit gains.

Approximately half of those 21 markets are located either in Florida or California, with Cape Coral-Fort Myers leading the way at 36.7 percent and 33.1 percent, respectively. Other Florida markets with sizeable income gains over the last year include West Palm Beach (17.8 percent), Fort Lauderdale (15.9 percent), and Sarasota (23.4 percent).

Meanwhile, the two least affordable housing markets in the country, San Francisco and San Jose, saw inventory jump by 19.3 percent and 8.7 percent in the last year, respectively. Other California markets with noticeable gains in housing inventory were San Diego (9.4 percent), Bakersfield (10.6 percent) and Fresno (24.4 percent).

“This is cautiously optimistic news for frustrated buyers in the Golden State, who have seen prices soar whilst inventory remained flat over the past few years,” McLaughlin said. “While prices aren’t likely to fall anytime soon because of healthy demand, growing inventory may help moderate the strong price gains that these markets have experienced since market bottom in 2012.”

Increasing inventory combined with a 5 percent increase in real incomes during 2015—the largest increase on record, according to the U.S. Census Income and Poverty report, may help break what has been a gridlocked housing market, McLaughlin said.

Click here to view the full report.