Inventory levels hit crisis numbers in hottest housing markets

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In the nation's hottest housing markets, inventory shortage has reached crisis levels, according to Zillow's December Real Estate Market Report.

There are up to 40% fewer homes for buyers to choose from in housing markets where home values are appreciating fastest, and 10% fewer homes on the market overall.

For-sale inventory has declined on an annual basis for the past 35 consecutive months, with only 16.7% of surveyed housing experts anticipating a significant increase in homebuilding this year, suggesting that limited supply may continue to drive the housing market in 2018.

"Tight inventory fueled by a tight labor market and low interest rates propelled home values to record heights in 2017, but the outlook is now much less certain," Aaron Terrazas, Zillow's senior economist, said in a press release referring to tax reform.

Tax reform will put more money in the pockets of average buyers, but will place limitations on some housing-specific deductions. This should help ease competition to an extent in the more expensive market segments, while increasing demand for the most affordable homes.

"On the supply side, the market is starving for new homes, but it won't be easy for builders struggling with high and rising land, labor and lumber costs. Aging millennials and young families may be able to find more affordable new homes for sale this year, but they'll most likely be in further-flung suburbs with more grueling commutes to urban job centers," said Terrazas.

The median home value rose 6.5% over the past year to $206,300, the highest this figure has ever been. Median rent also rose 2.6% since last December to a payment of $1,439 per month.

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Housing inventory Housing market Home prices Real estate Tax reform Zillow