As 2016 draws to a close, annual growth in rents has stabilized, the number of homes listed for sale is at its lowest point on record and annual home value growth is accelerating. Fast-forward to 2017 and beyond, and all three of these trends are expected to continue influencing each other and the entire market.
According to the November Zillow Real Estate Market Reports, median U.S. home values rose 0.6 percent from October and 6.5 percent year-over-year to a Zillow Home Value index of $192,500 — the 52nd consecutive month of annual growth and the fastest pace since August 2006.
In each month between January and August, the annual pace of U.S. home value growth was fairly consistent, never growing slower than 5.6 percent and never higher than 5.9 percent. Beginning in September, however, the annual U.S. growth rate began accelerating — to 6 percent in September, 6.3 percent in October and 6.5 percent in November.
Here are some potential main drivers of this acceleration:
Local dynamics
Of the 35 largest metros covered by Zillow, 19 were growing faster year-over-year this November compared with November 2015. More markets exhibiting faster growth in home values will translate into an acceleration at the national level. Home values in all 35 of the largest metro areas analyzed grew year-over-year to some extent in November. Meanwhile, the housing market has slowed in 15 of the 35 largest markets compared with this same time last year, including several markets that still are exhibiting strong growth, just at a slightly slower pace.
National concern
As of November, 1,422,084 homes were listed for sale nationwide, down 5.9 percent from a year ago and the lowest number recorded since Zillow began tracking the data in January 2010. Inventory has fallen year-over-year for 22 straight months, and except for a brief period of annual increases beginning in mid-2014, in 51 of the past 60 months. Inventory fell year-over-year in November in 27 of the largest 35 metros. And, in all 35 of the largest metros analyzed and the nation as a whole, inventory in November was more than 25 percent below highs reached since January 2010. Despite the lack of homes to buy, sales still have been surprisingly strong lately, an indicator of strong demand. And when demand is high but supply is low, prices overall can typically be counted on to increase.
Opportunity in stability
Throughout much of 2015, annual rental growth was incredibly strong, peaking at 6.6 percent in July 2015 — much faster than the pace of wage growth during the same time. Since then, annual growth in rents has slowed considerably. As of November, the U.S. median rent was $1,403 per month, according to the Zillow Rent Index, up just 1.5 percent from a year ago and more in line with the pace of wage growth. During the past three months, even as year-over-year home value growth has accelerated, annual rent growth has largely stabilized at 1.4 percent in September and October and 1.5 percent currently. This slowdown and stabilization likely will be welcome news to renters who are struggling to both manage rising rental costs and trying to save enough money for a down payment to make the jump into homeownership. If this stabilization continues, more renters could soon enter the pool of would-be home buyers, potentially boosting demand.