The supply of homes for sale is falling across the nation, as demand soars and attractive mortgage rates pull buyers off the sidelines.
At the end of October, inventory nationwide fell to a 3.9-month supply, according to the National Association of Realtors. The means that at the current sales pace it would take that long to sell all of the 1.77 million homes available for sale.
A 6-month supply is generally the sign of healthy market, balanced between buyers and sellers.
Inventory has been falling annually for five straight months, after it recovered slightly toward the end of last year, due to a spike in mortgage rates. Rates began falling again by spring of this year. Homebuilders have been increasing production slowly, but it's not enough to meet the increasingly strong demand.
Millennials have waited longer to buy homes than previous generations, due to the last recession, but now the economy is stronger, and they are aging into their buying years at a fast clip.
"A lack of entry-level homes means newcomers to the market can have a hard time getting a foothold," said Matthew Speakman, an economist with Zillow. "They and other budget-conscious shoppers shy away from prices in many of the country's most populous areas, creating a nation of would-be home buyers who show preternatural patience in waiting for the right home to come along."
The supply is worst on the low end, down over 6% from a year ago for homes priced between $100,000 and $250,000, according to the Realtors. Supply is down 15% for homes priced below $100,000. In the move-up market, supply is rising, but barely at around 1% annually.
Of course all real estate is local, and certain markets are seeing much more severe drops in supply. California, where prices are highest, is seeing a drop in supply in all major markets, but supply is also falling in some unexpected cities:
October Housing Inventory vs. 2018
Kansas City: -16%
Las Vegas: -14%
Washington, D.C.: -17%
The run on housing in the Mid-West is likely due to its attractive affordability. Pittsburgh has seen very strong job growth as it becomes an unexpected tech center. Millennials especially have been migrating to smaller cities like Pittsburgh and Kansas City because up until now at least there was a good supply of entry-level homes for sale as well as strong employment. While tech is expanding to new cities, California continues to attract workers.
"Despite sky-high housing costs, tech hubs still see strong job gains," said Jed Kolko, chief economist at Indeed, an online job site. "But the fastest growing metros now are mid-size and smaller metros in the Sunbelt."
As supply drops across the nation, home prices are heating up again. In October, the national median home price was up over 6% compared to a year ago, the highest annual growth rate in more than two years, according to the Realtors. Price gains had been shrinking for much of last year, as buyers hit an affordability wall. Now lower mortgage rates are fueling prices yet again, and as demand outstrips supply more and more, prices have nowhere to go but through the roof.