• U.S. for-sale inventory fell just 1.1% month-over-month in March, a far shallower decline than in previous months, and was up from February in 19 of the nation's 50 largest markets.

• The typical U.S. home value rose 1.2% in March from February, to $276,717, the largest monthly jump ever recorded in the Zillow Home Value Index.

• The Zillow Observed Rent Index rose to $1,721, up 0.9% from February, the largest month-over-month increase in any March on record.

Editor's Note: In March 2020, a large part of the nation's housing market temporarily froze as the COVID-19 pandemic began in the U.S. in earnest and stay-at-home orders were widespread. Year-over-year data comparisons over the next few months will be made against both the COVID freeze of the spring, and subsequent housing recovery that began last summer. Assuming 2021 is more typical of a "normal" year in housing than 2020 was, with a burst of activity in the spring and summer and a relative cooldown in the fall, we expect many of our year-over-year measures will show large gains over last spring, and potentially annual declines in the fall. We urge you to use caution in extrapolating too much from year-over-year measures in coming months, and we will always try to provide appropriate context to anchor reported changes in metrics to what is normal or expected.

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Home value growth kept soaring and the rental market rebound carried on in March — but signs are emerging that the nation's ongoing inventory squeeze may be starting to ease somewhat, just in time for the start of the traditionally busy spring home shopping season.

There were less than 1 million homes listed for sale in March (966,970), down 1.1% from February and 32% from March 2020 — the 18th straight month of overall annual declines, and the 12th consecutive month of double-digit annual declines, according to the March 2021 Zillow Real Estate Market Report. But this longstanding narrative may be about to change.

The 1.1% monthly decline in inventory was the smallest since July 2020, and follows much larger monthly drops of 7.5% and 8.1% in February and January, respectively. Locally, inventory was actually up month-over-month in March in 19 of the nation's 50 largest metros — up from 0 large metros that experienced monthly inventory gains in February. The largest monthly gains in inventory among these large metros were in San Jose (14.5%), Seattle (11.3%), San Francisco (9.5%), Boston (6.4%) and Washington, D.C. (6.4%). And Zillow's raw count of nationwide inventory (tabulated prior to seasonal adjustment, smoothing and other data processing techniques used in the headline series) actually showed a monthly increase in March, up 6.6% from February.

Finally, while the early weeks of 2021 were marked by a scarcity of new home listings as sellers stayed on the sidelines in the face of an uptick in COVID-19 cases and a string of harsh winter weather, our data indicate they are starting to come back. New listings nationwide rose by 30.0% in the four weeks between late February and late March.

These are small signs, admittedly, but encouraging ones: In prior years, inventory has generally increased in March, and the return to some seasonal normality is a positive sign that the market is reaching a more steady state and could see inventory rise more steadily going forward. With home values skyrocketing, vaccination rates rising and employees getting long-term guidance on where they can work, we expect an increasing number of homeowners to enter the market and list in coming months. That will come as welcome news to home shoppers enmeshed in bidding wars and watching homes get plucked off the market weeks faster than usual.

Home Value Growth at Record Highs — Again

But even as the inventory shortage shows signs of reversing, its effects continue to drive the market to new heights as buyers compete furiously over the limited supply of homes available. The typical U.S. home value rose to $276,717 in March, up 1.2% from February — the largest one-month increase ever recorded in the more than 25-year history of the Zillow Home Value Index, on the heels of last month's then-record 1.1% monthly increase. Put another way, the typical U.S. home was valued about $3,200 more in March than it was in February. And the 10.6% rise from March 2020 was the largest annual increase in 15 years. Growth at this pace, if sustained, could send the value of the typical home to more than $300,000 by October.

Home values were up on the month and the year in all 50 of the largest metro areas tracked by Zillow. The fastest monthly growth was seen in Austin (2.4%), Phoenix (2.3%) and Riverside (1.9%), all accelerating from the previous month; monthly growth was slowest in San Jose (0.05%), San Francisco (0.6%) and Orlando (0.7%). Annual growth in March ranged from scorching hot highs of 20.2% in Phoenix to "only" 5.4% in San Francisco. Of the 16 large markets that experienced a slowdown in monthly home value growth in February, only San Jose continued to slow down significantly in March (from 0.6% year-over-year growth in January, to 0.3% in February and 0.05% in March). There is essentially no evidence in the Zillow Home Value Index that the wind is leaving the market's sails, at either the local or national levels.

Rental Market Rebound

The nation's rental market also showed real energy in March, beginning to make up ground after the slump that began this time last year. The Zillow Observed Rent Index rose to $1,721, up 0.9% from February, the largest month-over-month increase in any March on record, and up 1.1% from March 2020. This was the third consecutive month of rent increases, bringing year-over-year growth back above 1% for the first time since July.

Rents have been softer since the start of the pandemic in many large markets, and they continue to fall in some of the most-expensive areas even as they've taken off in a handful of more-affordable metros over the last few months. But in March, rents grew at an accelerated rate almost across the board. Year-over-year rent growth was faster in March than in February in 46 of the largest 50 metros.

In February, rents were down year-over-year in a dozen of the nation's largest markets. But in March, 4 flipped into positive territory: Minneapolis, Austin, Houston and Denver. Rents grew year-over-year in 42 of the nation's 50 largest metros, led by Riverside (12.2% annual increase in March, up from 11.0% in February), Phoenix (10.5%, up from 8.4%), and Providence (9.9%, up from 8.8%). Rents fell the most year-over-year in New York (-9.0%), San Francisco (-8.3%), San Jose (-7.4%), Boston (-5.2%) and Seattle (-5.0%). But the hole was at least a full percentage point deeper in February in all these metros, showing that a corner could soon be turned.

Look Ahead

Zillow continues to expect robust home value growth over the next year, rising 12.1% year-over-year by the end of 2021 and 10.4% in the 12 months through March 2022, with the pace of annual growth peaking at 13.5% in August of this year. Our home value forecast has been revised downward slightly from February, when we expected 11.4% growth through February 2022, in part because of recent rises in mortgage interest rates that may contribute to a modest slowdown in appreciation.

On the sales side, we also continue to expect a strong year in 2021. Despite recent moderation in sales volume, the year has started off on a solid footing — 1.22 million existing homes were sold in Q1 2021, up 13.9% from Q1 2020 (before the pandemic arrived in earnest). We anticipate 1.78 million home sales to occur in Q2, 16.7% more than in the same period in 2019 (comparisons to Q2 2020, when the pandemic stalled a large majority of housing activity nationwide, are potentially misleading). We are forecasting a total of 6.4 million home sales in calendar year 2021, up 13.5% from 2020 and the strongest calendar year for sales since 2006. While we expect the seasonally adjusted annualized rate of sales to consistently increase through the end of the year, our sales forecast this month is a downward revision from the outlook presented last month. Recent moderation in sales activity and mortgage applications slightly dampened our near-term outlook, but continued low mortgage interest rates and an accelerating economic recovery give us optimism for future months.

Although the rapid ascent of home values have stoked fears of another housing bubble, strong fundamentals underpin the market's heat. Average credit scores among buyers are vastly better than in the early 2000s, lending standards are tighter, and continued strong demand going forward — including from millennials aging into homebuying — is expected to keep sales strong in the coming months.

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