The inventory drought that has driven price increases this spring is ending as new listings restore supplies. Larger inventories, especially in the hotter markets that experienced rapid price increases in the spring, are providing buyers more choices and moderating price increases.

Realtor.com’s year over year inventory declined 5.24 percent for the second month in a row. However inventories were up 1.41 percent over June. National median list prices increased 5.27 percent year-over-year while median age of inventory fell 16.67 percent.

The very hot California markets that were a concern two months ago have cooled. In fact, inventories have recovered so much in Sacramento and Stockton-Lodi that their supplies of listings for sale on Realtor.com are larger than they were a year ago. The recovery’s new phase is characterized by smaller price swings, larger inventories that reflect higher home values, a moderate decline in the median age of inventory and a general return to stability. The balance of the year will see markets consolidate the price gains they achieved during the buying season.

Dramatic national year-over-year inventory declines have evaporated. Nationally inventories in July are only 5.24 percent below the level of a year ago compared to being down 16.47 percent year-over-year in January.

Inventory declines decreased in local markets. In July 2013, the number of markets with decreases in year-over-year inventory declined from 125 markets in June to 118 markets in July. This suggests that this fall inventories in some markets may return to levels of a year ago and may continue to slow price increases in some markets.

Markets are still moving fast. All but five markets are continuing to experience year-over-year declines in age of inventory and on a month-over-month basis. On a national level, housing inventory is approximately 17 percent below last year, but the national age of inventory increased 6.25 percent month-over-month.

Market Highlights:

• With inventories playing a smaller role, rising mortgage rates during the balance of the year could have a significant impact on demand and the future of the recovery. To date, however, there is no sign of slowing. List price gains have held steady, more markets enjoy positive year-over-year median prices than in June and the age of the inventory in realtor.com’s database is 16.67 percent lower than a year ago.
• The recovery to date has been broad but not complete. A minority of markets, mostly in the Northeast and Midwest, have barely felt the recovery. Median prices in 37 of the 150 markets tracked by realtor.com are either the same or lower than they were last year at this time despite the fact that most of them have lower inventories than they did a year ago. Many of these markets suffer from high local unemployment or significant volumes of distress sales.
• Many economists and policy makers continue to point to the housing recovery as vital to the national economy. As inventories normalize and prices moderate, now we need to look to the economy and job creation to drive the housing economy, not the other way around. Rising mortgage rates and weak job reports are cause for concern.

Key Data Points

• The falloff of inventories is dramatic. Nationally inventories in July are only 5.24 percent below the level of a year ago, compared to being down 15.97 year-over-year in February. Moreover, seasonally inventories are greater at the outbreak of the buying season and smaller at the end.
• Not all markets doing well are the ones making headlines. Price are up over 10 percent in Denver, Seattle, Dallas, Boulder, Salt Lake City, Minneapolis, Ann Arbor, Houston and Nashville.
• Fewer markets in July have lower inventories than a month ago. The number has fallen from 130 to 122 out of 150 in one month. This suggests that by fall, inventories could return to levels of a year ago and have a dampening effect on future price increases for the rest of the year.
• Age of inventory nationally increased 6.24 percent from June and is only 16 percent below last year. However all but 5 of 150 markets have a lower age of inventory than a year ago.
• While California markets have dominated the list of markets with the largest housing inventory declines in the first part of 2013, they have been replaced by a new set of market leaders including: Detroit, Mich.; Boston; Denver; Honolulu and Naples, Fla. The large decreases in the for-sale inventory in these markets suggests the beginning of a housing market recovery process similar to what was observed in Florida in 2011, and in California in 2012 and 2013.
• “The recovery is entering a new phase where inventory shortfalls are no longer the driving force behind changes in housing prices in many markets. Larger inventories, especially in the hotter markets that experienced rapid price increases in the spring, are expanding buyers’ choices and helping to moderate price increases,” said Steve Berkowitz, CEO of Move, Inc. “This month’s report also underscores the uneven nature of the housing recovery and its dependence on the strength of the local economy.”

A growing number of markets are experiencing year-over-year increases in for-sale inventories. For example, for-sale inventory was up by one or more percent on a year-over-year basis in 25 markets in July compared to just seven markets in April.

Areas with inventories having the longest time on market are shown below. While the Carolinas andPhiladelphia have been on the list for the past several years, Florida markets are relatively recent entrants.

The 10 areas with the shortest time on market are shown below. The number of California markets on the list has declined steadily in the past few months, although Oakland, Calif., continues to have the inventory with the lowest median age.