Zillow reported today that the greatest year-over-year decreases in inventory have been among more expensive homes, with the availability of top-tier and middle-tier properties each falling 15.7 percent year-over-year. The number of bottom-tier properties for sale on Zillow nationwide fell only 2.5 percent in early June compared to June 2012.

The analysis counters the conventional belief that supplies of lower tier homes have declined more than higher priced homes due to the effects of negative equity, which is more prevalent among mid and lower income homeowners, and declining numbers of distress sales, which are generally lower priced homes.

Other sources show that it is taking two or three times longer to sell higher priced homes than the average priced home. The Institute for Luxury Home Marketing reported Tuesday that the average days on market for homes priced over $500,000 was 161 in the first week of June. The National Association of Realtors reported the median time on market for all homes was 46 days in April, down sharply from 62 days in March, and is 45 percent faster than the 83 days on market in April 2012. The median age of inventory for all homes on Realtor.com was 79 days in May.

Walt Danley, a leading luxury Realtor in Arizona, recently criticized Zillow’s system of relying on its automated valuation model algorithm (or “Zestimate”) to identify luxury homes used in its data. He claims the algorithm is underpricing homes, excluding many from the luxury category.

“There isn’t an accurate way to apply algorithms relying on big data to small data sets. Because there aren’t as many homes per square mile in luxury neighborhoods, there simply can’t be the same number of home sales to use as data points. A real estate agent who knows the area and understands the nuances of the inventory is crucial to arriving at a fair price when you can’t draw on dozens of recent, similar sales.

“Keep in mind that inaccuracy can go both ways, and while it was common for the Zestimate to overprice homes during the recession, they are now underpricing homes using the low price data from 2012. Pricing hasn’t been setting new records in luxury homes despite some upward pressure. Bargain hunters pointing to a Zestimate to justify a low-ball offer will generate more laughs and eye-rolls than it will signed contracts,” wrote Danley on his website June 4.

Zillow’s inventory report found that overall, year-over-year inventory levels improved in June compared to January in 70 metros and the nation as a whole. Among the 30 largest metro areas covered by Zillow, those with the highest degree of year-over-year inventory improvement between January and June include Phoenix (31.9 percentage point improvement); San Diego (14.9 percentage point improvement); and Minneapolis (13.5 percentage point improvement).

Inventory shortages worsened between January and June in 29 metro areas overall, and in 11 of the top 30 largest metros. Large metros where inventory constraints have tightened the most since the beginning of the year include Las Vegas (-21.8 percentage point worsening); Chicago (-12.3 percentage point worsening); and Washington, D.C. (-9.8 percentage point worsening).

“As the recovery has progressed, inventory constraints have played a major role in rapidly pushing up home values in many areas, as increasing demand for homes ran headlong into limited supply. It has always been just a matter of time before more supply came on the market to meet this demand, as homebuilders built more new homes and sellers entered the market to capitalize on recent robust appreciation in their own homes,” said Zillow Chief Economist Dr. Stan Humphries. “Inventory will likely remain below year-ago levels for a while yet, as builders ramp up capacity and sellers wait to squeeze every drop of equity from their home before listing. But a corner has been turned. Going forward, as this new supply makes its way to market, we expect the pace of home value appreciation to slow down from unsustainably high annual levels of 5 percent or above to more moderate levels closer to historic norms of 3 percent or 4 percent.”