After nearly four years of annual declines in inventory, the number of homes for sale has now increased year-over-year for three straight months.

That's a bit of good news for home shoppers who face less competition as homes stay on the market for longer. But inventory levels are still well below where they were five years ago, and small increases have yet to meaningfully reverse those deficits, according to the November Zillow Real Estate Market Report. A year ago, inventory fell 9.1 percent on an annual basis.

Some of the markets that were among the hottest in the country are seeing the biggest increases in available homes, but these are also the places where restricted inventory created more competition for potential buyers.

Meanwhile, the number of homes available to buyers in Kansas City, Las Vegas, and Washington, D.C., fell at a double-digit pace in November, a sign that the inventory recovery has not reached every market.

"After years of intense inventory shortages and cutthroat competition, any gains in inventory should be embraced by home buyers. Unfortunately, the small recent gains are not nearly enough to fully erase the existing deficit, nor are they evenly distributed, there are roughly twice as many homes available for sale in the higher reaches of the market than there are at the lower, more competitive end," said Aaron Terrazas, senior economist at Zillow. "Rather than calling this a true inventory recovery, it's probably more accurate to say that inventory levels are no longer in a free fall and are currently bumping along the bottom. And unfortunately, it's looking increasingly unlikely that we'll see a meaningful upward surge in inventory any time soon.

The typical U.S. home is worth $222,800, up 7.7 percent year-over-year. Las Vegas and Atlanta home values grew the most since last November, with the median home value in each metro increasing by more than 13 percent. But while Atlanta surpassed its bubble peak value in mid-2017, the Las Vegas market is still 12.5 percent below the highest point it reached during the housing bubble.

Rents saw a slight increase in November after three months of flat or even declining costs. The median U.S. rent is $1,449, up 0.5 percent from a year earlier. Annual rent appreciation slowed since early 2018, even seeing slight declines in the fall.

Orlando and Riverside, Calif., saw the biggest increases in rents, up 4.4 percent and 3.9 percent, respectively. Rents in Portland, Oregon, Seattle and New York declined the most. Portland rents have now declined for five consecutive months, after growing 4.6 percent annually a year ago.

Mortgage rates have moderated after turning in a significant drop last week, according to the Primary Mortgage Market Survey from Freddie Mac.

“The response to the recent decline in mortgage rates is already being felt in the housing market,” said Sam Khater, chief economist for Freddie Mac. After declining for six consecutive months, existing home sales finally rose in October and November and are essentially at the same level as during the summer months. This modest rebound in sales indicates that homebuyers are very sensitive to mortgage rate changes and given the further drop in rates we’ve seen this month, we expect to see a modest rebound in home sales as well.”

Mortgage rates for the week in brief:

• 30-year fixed-rate mortgage averaged 4.62 percent with an average 0.4 point for the week ending December 20, 2018, down from last week when it averaged 4.63 percent. A year-ago at this time, the 30-year fixed-rate mortgage averaged 3.94 percent.
• 15-year fixed-rate mortgage this week averaged 4.07 percent with an average 0.4 point, unchanged from last week. A year-ago at this time, the 15-year fixed-rate mortgage averaged 3.38 percent.
• 5-year Treasury-indexed adjustable rate mortgage averaged 3.98 percent with an average 0.3 point, down from last week when it averaged 4.04 percent. A year-ago at this time, the 5-year adjustable-rate mortgage averaged 3.39 percent.

The Mortgage Bankers Association’s Market Composite Index, a measure of mortgage loan application volume, decreased 5.8 percent--on a seasonally adjusted basis for the week ending Dec. 14, 2018, compared with one week earlier.

“Despite mortgage rates falling across the board last week to their lowest levels in three months, mortgage applications also declined, as more potential borrowers likely stayed away because of ongoing financial market volatility and economic uncertainty,” Joel Kan, MBA’s associate vice president of economic and industry forecasting for the MBA.

On an unadjusted basis, the index decreased 7 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The unadjusted Purchase Index decreased 10 percent compared with the previous week and was 2 percent higher than the same week one year ago.

“Purchase applications decreased almost seven percent over the week and refinances decreased around two percent, led by a larger decline in government refinances compared to conventional refinances,” said Kan. “With rates continuing to slide lower, refinance borrowers with larger loan balances seemed more apt to take action. The average loan balance for refinance loans increased to its highest level since September 2017.”

The refinance share of mortgage activity increased to 43.5 percent of total applications, its highest level since February 2018, from 41.5 percent the previous week. The adjustable-rate mortgage share of activity increased to 7.9 percent of total applications.

The Federal Housing Administration share of total applications decreased to 10.4 percent from 10.8 percent the week prior. The Department of Veteran Affairs share of total applications decreased to 9.9 percent from 10.2 percent the week prior. The Department of Agriculture share of total applications decreased to 0.6 percent compared with 0.7 percent a week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $453,100 or less decreased to its lowest level since September 2018, 4.94 percent, from 4.96 percent, with points decreasing to 0.43 from 0.48, including the origination fee, for 80 percent loan-to-value ratio loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances, greater than $453,100, decreased to its lowest level since September 2018, 4.74 percent from 4.80 percent, with points decreasing to 0.26 from 0.33, including the origination fee, for 80 percent loan-to-value loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to its lowest level since September 2018, 4.95 percent, from 4.97 percent, with points decreasing to 0.51 from 0.55, including the origination fee, for 80 percent loan-to-value loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to its lowest level since September 2018, 4.37 percent, from 4.41 percent, with points decreasing to 0.37 from 0.44, including the origination fee, for 80 percent loan-to-value loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to its lowest level since September 2018, 4.17 percent, from 4.24 percent, with points increasing to 0.42 from 0.34, including the origination fee, for 80 percent loan-to-value loans. The effective rate decreased from last week.