While the nation's supply of for-sale homes has seen some steady improvements over the year, a new concern has emerged: Most of the inventory now hitting the market is too overpriced for the average homebuyer.
Looking at the stock of homes for sale in its network of markets, national brokerage Redfin reported that, among the "mid-range" of home prices ($130,000–$375,000) available supply has actually fallen 17 percent over the last three years to a total of 668,000 as of July.
In the lowest quartile of the market, the shortage is even more severe, with supply down nearly 50 percent since 2011.
On the other hand, the most expensive segment of the market (homes priced at $375,000 or higher) has grown 16.4 percent over the past three years.
"Since 2011, homebuyers across the country have been frustrated, and it's easy to see why: There have been far fewer homes for sale," said Redfin analyst Troy Martin. "This year, we have seen a slow but steady increase in overall inventory, but homes in the price range that most buyers can afford have only become harder to find."
The shift in supply is more extreme in some markets. For example, in Las Vegas, the number of homes for sale in the city's mid-range ($77,000–$177,000) has fallen off by 51 percent. Sacramento, where the middle range falls between $129,000 and $319,000, has seen a similar drop-off, with supply declining 48.6 percent.
Meanwhile, in markets like Phoenix, the supply of high-end homes (above $270,000 in that market) has risen more than two-thirds since 2011.
"In Phoenix, low inventory is not necessarily the problem," said Marcus Fleming, a Redfin real estate agent and market manager in the area. "The issue seems to be that a lot of what's on the market is overpriced, and buyers are feeling uncertain about whether it’s a good time to buy. Some of my clients are getting homes under contract but continuing to tour more properties, to be absolutely certain they've found the best deal."
Further skewing the market is the fact that the "middle range" of home prices isn't what it was only a few years ago. While the base for Redfin's price ranges was captured in 2011, the mid-range today falls between $155,000 and $429,000, up 36.6 percent in three years.
"To put that in perspective, the average price of a home in the middle half of the market has increased more than three times as fast as the overall rate of inflation since 2011, according to the Consumer Price Index," Martin said.
Redfin attributes the squeeze on the middle range to three factors: a lack of support from new construction, a still-high proportion of investor and all-cash sales outmuscling traditional buyers, and the number of homeowners still stuck in their homes and unable to list them due to low equity—as high as 35 percent, the company estimates.
For the rest of the year, Martin predicts new home construction will be crucial in providing relief to homebuyers in that range, forecasting a pickup in new home growth as construction jobs and building permits strengthen.
As prices continue to rise, however, the more expensive markets may take a hit to home sales.
"Without more affordable options, homebuyers will have to choose between paying more and getting less, or putting off their home-buying plans entirely," Martin said.