The "great reset," continued. 

There's good news and some not so good news on the U.S. housing front.

Let's start with the good. According to the latest update to Zillow's U.S. Home Value Index, out Monday, the average nationwide home value as of June 2014 is $174,200. That's a peak that hasn't been seen since March 2005.

We're still below pre-recession levels, but it's an improvement by any measure:

Housing inventory has also been ticking up. As the report's authors note, "the number of homes listed for sale on Zillow was up 17.7 percent annually in June on a seasonally adjusted basis, the fourth straight month in which inventory has increased. Inventory rose on an annual basis in 81 percent of metros covered by Zillow."

This higher inventory indicates housing prices may start to weaken, which could also be exacerbated by forecasts of rising mortgage rates.

Housing prices remain terribly uneven across U.S. metro areas. Single-family homes in San Francisco, for example, averaged $692,100 in June, more than four times the national average. In Los Angeles, they averaged $539,800, more than three times the national going rate. In New York and Washington, D.C., housing prices were at least double the national average. Conversely, housing values hovered around $113,000 in Detroit, even when including that city's more affluent suburbs. Prices were also below the national average in the faster growing Sunbelt metros of Dallas-Fort Worth, Atlanta, and Tucson.  

Which brings us to the not so good news. According to Zillow, there is not enough affordable housing inventory to go around in most of the country's large metro areas. Homeownership may in fact be slipping out of reach—not just for lower income Americans, but working and middle class people as well. 

The graph below, drawn from the report, paints the picture. Notice how tight and top-heavy available housing stock looks to be in many metros. The graph is broken down by color—the most expensive housing stock is in orange, the middle value tier is in green, and the least expensive housing is in blue.

In Dallas and Denver, only about 15 percent of homes available for purchase are in the least expensive tier. In Atlanta and Sacramento, the affordable home market is less tight, but still notably scarce, in the low 20s. In Charlotte, Las Vegas, Minneapolis-St. Paul, and D.C. (and other metro regions), less expensive homes make up around 25 percent of the market. There are just three metros—San Jose, San Francisco, and Seattle—where the least expensive tier of housing makes up a third or more of inventory, and all of these are extremely expensive markets. 

As Zillow's researchers note, this tightness of supply will continue to have an impact "on first-time home buyers, as well as anyone trying to buy a low-end home."

High prices in some markets combined with the dearth of affordable homes for sale in others continues to put pressure on rents. The Zillow Rent Index, which covers 862 cities, shows that national rents are up 2.5 percent year-over-year. And a number of markets saw very high increases in rent, including San Jose (13.5 percent), San Francisco (11.0 percent), Denver (7.9 percent) and Austin (7.6 percent).

It's high time to rethink America's housing policy, which has long incentivized homeownership over renting. While this made sense for the old industrial economy—when building homes in the suburbs helped create demand for factories producing everything from cars to TVs to washing machines—it makes much less sense for the knowledge economy, which is powered by density and clustering.

Indeed, what we're currently going through is not a typical housing cycle, but what I have termed a "great reset." The reset includes increased demand for housing in large, dynamic metros—especially knowledge-based ones—slack demand in older metros and exurban locations, and increased demand for locations at or near the urban core and walkable suburbs serviced by transit.

Most of all, the reset involves a shift from homeownership to renting, especially in highly priced, dynamic markets on the East and West coasts. The rate of homeownership has been falling since the crisis, and in some of the densest and pricier metros, it's already below 60 percent.

This shift from homeownership to rentals can be a good thing. My own research indicates that metros with the highest rates of homeownership (say, in excess of 60 to 80 percent) also have the most sluggish rates of innovation, productivity and economic growth, while metros in the range of 55 to 60 percent homeownership have faster rates of innovation and growth. A balance between renters and homeowners, then, seems to provide the flexibility of housing types needed to support more dynamic economies.

It makes little sense to expect our homeownership rates to rebound to what they were before the housing crisis. We need to accept the fact that the housing system we have today and will have tomorrow will have to be different from the one we had in the past. 

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