Since 2012, when inventories of active listings started to decline on a national level, supplies of homes for sale have fallen 24 percent. Year-over-year inventories have fallen for 29 consecutive months.

Shortages have inflated prices by 48 percent since 2011, limited choices for buyers and made homeownership too expensive for thousands of first-time and middle to lower income families. During 2017, inventory shortages reduced sales by about 1 percent.

As the year ends, the evidence is growing that the worst is over and 2018 will see markets slowly return to normal. Here are four signs that the supply and demand will become more balanced in the coming year.

New listings are up

Higher prices are finally motivating more owners to sell. On a national basis, new listings were higher than they were last year in five of the six months from May through October, the best showing since mid-2015.

In October alone, some 370,000 new listings hit the market, a 2 percent increase. In October, new listings were up in 60 of the nation’s top 100 markets. (This article was written before November and December data were available.)

Active listings are increasing in more markets

Even at the peak of the inventory shortage, not every market suffered. In the past year, the number of top 100 markets reporting positive inventory growth increased from 14 in October 2016 to 21 in October 2017.

Rents are flattening

Rents and home prices often move in tandem because they are both driven by demand for housing. The most ambitious wave of apartment construction in a generation will peak next year, and the conversion of about 4 million single-family homes into rentals has boosted inventories. Rent is rising slower than home prices.

In single-family rentals, year-over-year rent growth has fallen since it peaked early last year and now is rising at only 3 percent annually. Apartment rent growth started to flatten in August and has declined for three straight months.

Rent growth is still up 2.7 percent year-over-year while existing home prices rose 5.5 percent in October.

Slower rent increases will make it easier for first-time buyers to save for a down payment and may temporarily slow demand among first-time buyers, which will help inventories recover faster.

New construction is accelerating

Home builders were devastated by the housing crash, and it has taken several years for new home construction to make a dent in demand. This year has been unexpectedly slow, with new home production only 1.1 percent above last year.

Single-family starts rose 5.3 percent, and completions were up 2.6 percent in October, the best month of the year for new homes. Due to their strong start to the year, both total home sales and housing starts are on track for their best year in a decade, according to Freddie Mac.

The tea leaves look good for new homes next year. November’s builder confidence is almost at a post-recession high.

NAR’s Lawrence Yun forecasts single-family housing starts to jump 9.4 percent to 950,000 next year, still below the historical average of around 1.2 million starts but enough to make an impact on the inventory drought.

Economists at Freddie Mac forecast that housing construction will gradually pick up during the coming year, and those at Fannie Mae are calling for a 6.4 percent increase in new home sales.

Steve Cook is a communications consultant and  editor of Real Estate Economy Watch.

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