Home values, owing to a lack of inventory, low mortgage rates and improvement in job creation, are rising faster than expected, up almost 5% during the past 12 months, according to the April Zillow® Real Estate Market Reports from the Seattle-based company, released Tuesday.

Zillow expected an increase of only 2%, April 2015 through April 2016. The company's latest data shows home values currently appreciating at 4.9% to a Zillow Home Value Index of $187,000 (the median estimated home value for a given geographic area on a given day including all single-family residences, condominiums and cooperatives).

Shrinking inventory—there were 3.4% fewer homes on the market in April than a year earlier—has hit the entry-level segment hardest, Zillow said, with the number of entry-level homes for sale down almost 8% from April 2015.
Lower inventory means higher prices in many markets: During the past two years, Portland has seen an almost 40% decrease in the number of homes for sale as home values rose 15% during the past 12 months. Similar patterns are evident in Dallas, Seattle, and Denver, where inventory is down more than 20% and home value growth is in the double-digits.

"The struggle will continue for home shoppers this summer," said Zillow Chief Economist Dr. Svenja Gudell. "New construction has been sluggish over the past year; we're building about half as many homes as we should be in a normal market. There still aren't enough homes on the market to keep up with the high demand from every type of home buyer. In many markets, those looking to buy a home in the bottom or middle of the market will need to be prepared for bidding wars and homes selling for over the asking price. This summer's selling season's borders will most likely be blurred again as many buyers are left without homes and will need to keep searching."

Homes in the top third of the housing market have more frequent price cuts than homes in the bottom and middle of the market -- 16% of top-tier homes had a price cut over the past year, compared to 11% of bottom-tier homes and 13% of middle-tier. Almost 12%of condos had a price cut over the past year, driven by more availability in the luxury condo market.