May Inventory Surges; Lower Price Tier Still Struggling

The inventory of for-sale homes nationwide spiked in May, but the latest improvement isn't expected to do much for first-time homebuyers and other shoppers challenged by housing affordability concerns.

According to Zillow, after dropping in 2012 and remaining low throughout 2013 and the start of 2014, the available stock of for-sale homes climbed 4.3 percent from April to May, marking the third straight month of gains.

Year-over-year, inventory surged 11.8 percent, increasing in 506 of the more than 600 metro areas surveyed—approximately 78 percent.

Zillow's numbers compare to findings also released Monday by the National Association of Realtors (NAR), which reported a monthly gain of 2.2 percent in total housing inventory. NAR's figure also includes townhomes, condominiums, and co-ops as well as single-family homes.

"It's good to see overall inventory rising," commented Dr. Stan Humphries, chief economist at Zillow. "It's likely that many would-be sellers have decided to capitalize on recent home value gains, particularly as the pace slows, and list their home for sale now in order to move into a new home while mortgage interest rates remain low."

Not everyone stands to benefit from May's increase, however: According to the company, most of the strides made in housing inventory last month were concentrated in the middle and upper tiers in home values, leaving relatively few for the lower bracket that traditionally attracts first-time homebuyers.

In fact, Zillow reports, the number of homes available in the most affordable segment of the market actually fell year-over-year in 28 of the nation's largest metros.

In addition, first-time and lower-income borrowers who need traditional financing continue having to compete with all-cash buyers at their end of the market. As reported by Zillow earlier in the month, all-cash deals accounted for more than one-third of home purchases in the lowest price tier in 27 of the 30 largest markets.

"Low inventory and high demand can lead to rapid price spikes, which make homes even more difficult to afford for many buyers," Humphries said. "Hopefully the inventory gains we're seeing in the middle and upper tiers of the market will begin trickling down to the most affordable homes soon."

For those buyers who do find affordability a major obstacle, there is some good news. According to data in Zillow's Home Value Index for May, national home value gains slowed to 5.4 percent in May, marking the slowest annual pace of appreciation in more than a year. As of May, home values were recorded at $172,300 on Zillow's index.

Over the next 12 months, the company expects an additional 2.9 percent rise in home values.