The inventory crunch continues, with premium home inventory experiencing declines not seen since 2013.

An earlier version of this report contained incorrect values in the graphics depicting income needed to buy and overall inventory. They have been corrected.

It’s not getting any easier for potential homebuyers to find homes. This last quarter, national inventory experienced its largest year-over-year decrease in over four years. The number of available starter and trade-up homes continue to dwindle, but the supply of premium homes is now falling at rates not seen since 2013.

Examining the housing stock across the nation from Q4 2016 to Q4 2017, we found:

  • In Q4 2017, U.S. home inventory decreased by 10.5%. That is the biggest drop we’ve seen since Q2 2013.
  • Premium homes are experiencing historic declines, with a 5.9% tumble in inventory in the last quarter. As with the overall inventory trend, that’s the biggest fall in premium home inventory since Q2 2013. The largest decreases were in San Jose, Calif., Salt Lake City, and Rochester, N.Y.
  • Across starter, trade-up, and premium homes, last quarter’s listings were the most unaffordable on record – homebuyers will have to pay 39.8%, 25.8%, and 14.0% of their monthly incomes in each respective price category.

The third quarter of 2014 marked the highest growth in home inventory after the recession. Since then, both total and premium home inventory have slid to early-2013 rates of decline. In 2012, homeowners were still reeling from the effects of the recession, with many selling their homes out of hardship. As the recession eased, inventory dried up in 2013, leading to the sharp year-over-year drop in that year. The drop we’re seeing now is approaching 2013 rates, but inventory levels are already lower than 2013 levels due to steady declines across the last three years.

If record-level lows in inventory weren’t enough, homes across all three price categories are also the most unaffordable they’ve been since we started keeping track in Q1 2012. Measured as the share of monthly income required to purchase a home, unaffordability has ticked up to 39.8%, 25.8%, and 14% for starter, trade-up, and premium homes, respectively.

Though premium home inventory is declining at historically rapid rates, it still constitutes a large portion of the market. With the share of trade-up homes unchanged from this time last year – hovering at 24% — premium homes have started taking up market space once occupied by starter homes. So, even though premium homes are the most unaffordable they’ve been in years, they’ve also become a larger part of available inventory. If this trend persists, the market will become more and more saturated with homes that are unaffordable to even the top income brackets.

Markets with Largest Decrease in Premium Home Inventory in the Last Year
U.S. Metro % Change in premium inventory Percentage point change in inventory share
Starter Trade-up Premium
San Jose, CA -41.7% -3.4% -2.6% 6.1%
Salt Lake City, UT -38.1% 10.3% 3.4% -13.7%
Rochester, NY -30.5% 2.7% 1.4% -4.1%
Colorado Springs, CO -27.3% -7.4% -3.8% 11.2%
Bakersfield, CA -27.0% 0.9% -2.1% 1.2%
Oakland, CA -25.0% -2.1% -0.6% 2.7%
Ventura County, CA -24.9% -8.7% -2.7% 11.4%
Las Vegas, NV -23.1% -2.2% 0.8% 1.4%
San Francisco, CA -22.8% -6.8% -0.2% 6.9%
Cambridge-Newton-Framingham, MA -21.0% -1.3% -0.3% 1.6%
NOTE: Among the 100 largest U.S. metro areas. Full data set available for download here.

Looking more closely at premium home inventory, we see several west coast markets that are familiar chart toppers. Notably, San Jose, Calif., Oakland, and San Francisco represent a sprawling tech hub that are all in the top 10 most inventory-starved premium home markets. At the same time, in all but two of these markets, premium homes are increasingly becoming a bigger share of the market. That increase in premium home share is largely coming at the expense of starter homes—though premium home inventory is shrinking, starter home inventory is shrinking even faster. Metros like Colorado Springs, Colo., Ventura County, Calif., and San Francisco are seeing increases in premium market share that are almost mirrored by decreases in starter share. Premium homebuyers are facing historic dips in inventory, but it’s starter homebuyers that are losing out most.

What Does 2018 Hold for Inventory-Starved Buyers?

Despite inventory falling sharply yet again this quarter, homebuyers can be cautiously optimistic that inventory might rebound in 2017. Why? In our end of the year survey, one in three Americans think 2018 will be a better year for selling a home than 2017, and that 16% plan to sell their home in the next two years. If these Americans put their home where their mouth is, we may finally see an uptick in inventory over the coming year.

Methodology

Each quarter Trulia’s Inventory and Price Watch provides three metrics: (1) the number and share of inventory that are starter homes, trade-up homes, and premium homes, (2) the change in share and number of these homes, and (3) the affordability of those homes for each type of buyer.

We define the price cutoffs of each segment based on home value estimates of the entire housing stock, not listing price. For example, we estimate the value of each single-family home and condo and divide these estimates into three groups: the lower third we classify as starter homes, the middle third as trade-up homes, and the upper third as premium homes. We classify a listing as a starter home on the market if its listing price falls below the price cutoff between starter and trade-up homes. This is a subtle but important difference between our inventory report price points and others. This is because the mix of homes on the market can change over time, and can cause large swings in the price points used to define each segment. For example, if premium homes comprise a relatively large share of homes for sale, it can make the lower third of listings look like they’ve become more expensive when in fact prices in the lower third of the housing stock are unchanged.

Our national metrics are a weighted sum of listings and weighted average of affordability of the 100 largest metropolitan areas and our inventory measure is an average of snapshots taken on the first of each month of the quarter. Last, we measure affordability as the share of income needed to purchase the median priced home in each segment relative to metro-area household income terciles. To lessen the downward skew of income of households in the lowest tercile, we estimate starter homebuyer’s income using only household incomes of homeowners within this segment.

Note that this quarter’s report uses the recently released U.S. Census 2016 American Community Survey (ACS). As a result, affordability figures have been recalculated to reflect the updated data.