National home values rose just 0.2 percent in January from December to a Zillow Home Value Indexⁱ of $169,600, the smallest monthly increase since May 2012, as more inventory of for-sale homes helped slow previously high rates of appreciation, according to the January Zillow Real Estate Market Reportsⁱⁱ.  Nationwide, while inventory remains tight, the number of homes listed for sale on Zillow was up 11.1 percent annually in Januaryⁱⁱⁱ on a seasonally adjusted basis, the fifth straight month of rising year-over-year inventory.

Inventory rose year-over-year in 22 of the nation's 35 largest metro areas covered by Zillow, with the largest inventory gains coming in some of the areas that were hit hardest by the housing recession, including Las Vegas (up 42.8 percent), Phoenix (up 30.5 percent) and Sacramento (up 26 percent). These metros also experienced significant cooling in the pace of home value appreciation in January, as buyers had more homes to choose from and were less apt to engage in the kinds of bidding wars that helped drive prices up so quickly last year.

"Last year, tight inventory contributed to very rapid home value appreciation.  Now, more inventory is helping to moderate home value increases in many areas. This increased supply is coming from many sources, as more sellers are free to list their homes after being released from negative equity, builders continue to ramp up construction and many homeowners decide to list their homes and capitalize on recent gains," said Zillow Chief Economist Dr. Stan Humphries. "As the market shakes off a long winter and gears up for the spring season, we should see buyers gaining a bit more leverage this year than they've had in the past, with more choice and less competition. This slightly more balanced market is another step on the road back to normal, and will help offset the impact of rising mortgage rates and more expensive homes for buyers."

Year-over-year, U.S. home values rose 6.3 percent in January, down from peak gains of 7.1 percent in August 2013. For the 12-month period from January 2014 to January 2015, national home values are expected to rise another 3.4 percent to approximately $175,301, according to the Zillow Home Value Forecast^iv. Large metro areas expected to show the most appreciation over the next year include Riverside (13.3 percent), Orlando (10.3 percent) and Sacramento (9 percent).

National rents rose in January from December, up 0.4 percent to a Zillow Rent Index^v of $1,307. Year-over-year, national rents were up 2.8 percent in January.