The number of homes for sale nationwide tumbled 4.6 percent year-over-year in the last three months of 2018 across all price categories, according to the latest Inventory and Price Watch Report from Trulia. This marks the ninth consecutive quarter of declining inventory; the last time inventory rose was in Q3 2016. However, there are signs of progress with the nation's most expensive housing markets seeing large inventory gains.
Buyers Face Tighter Inventory and Worsening Affordability Heading Into 2019
The inventory drop is driven by the premium home segment where the number of for-sale homes fell 7.8 percent year-over-year, followed by modest declines across starter (2.2 percent) and trade-up homes (1.5 percent). Meanwhile, affordability has worsened across all housing segments as tight inventory and slow wage growth continues to put upward pressure on home prices. Nationally, starter home prices rose the most, up 13.9 percent from the last year. As a result, a typical starter-home buyer must now spend 41 percent of their income on a monthly mortgage payment, up from 34.2 percent a year ago.
"After promising signs of slowing inventory declines last quarter, the news is mixed as we close out 2018," said Cheryl Young, senior economist, Trulia. "While more sellers are listing homes in expensive West Coast markets, most homebuyers must still contend with tight inventory that's down 24 percent from five years ago. Coupled with slow wage growth, prices continue to inch higher, worsening affordability within the starter home market and possibly putting homeownership out of reach for many first-time buyers."
Starter and Trade-Up Home Inventory Surges in Pricey California Markets
Housing markets in the West experienced the nation's largest inventory gains despite the large dip in supply. Among the 100 largest U.S. metros, six of the markets with the biggest surge in inventory from last year were in California, most notably in San Jose (66.6 percent), San Francisco (36.5 percent) and Oakland (29.2 percent). This surge in every market except New York was driven by growth in starter and trade-up homes. In fact, the number of starter and trade-up homes in San Jose almost doubled from a year ago.
Starter Home Affordability Continues to Worsen
Despite inventory gains in the most expensive housing markets, prices continue to rise and outpace wage growth, especially in the starter home category. This has further put homeownership out of reach for many first-time buyers. For example, a typical starter-home buyer in San Francisco where the median starter home lists for nearly $900,000, would need to spend an unrealistic 146.9 percent of their income to afford a home.
