Eager buyers shopping for homes in today's modestly recovered housing markets might be disappointed to discover not many homes are available for sale. This shortage of inventory means homebuyers in some areas have but few -- if any -- for-sale homes to choose from.
Consider the Waltham, Mass., area, about nine miles west of Boston.
Gary Rogers, broker/owner of RE/MAX on the Charles in Waltham says inventory there is "extremely and unusually low" even for mid-winter. Inventory is so low, in fact, that one nearby town recently had zero single-family homes for sale.
"That boggles my mind," Rogers says. "It may have changed as of this morning, but a couple of days ago, there literally was zero single-family homes."
Supply is stuck
The perception of limited inventory is supported by data, though it's crucial to remember that national numbers don't necessarily match local-market conditions.
At the end of November, approximately 2 million existing homes were available for resale in the U.S., representing a supply of 5.1 months at the then-current pace of sales, according to the National Association of Realtors.
National inventory has been stuck near that five-month mark for the past year, according to NAR spokesperson Walt Molony.
A six-months' supply is generally thought to be a balance market. More than six-months' supply means the market favors buyers. Less than six-months' supply means the market benefits sellers.
No. 1: Home prices helping
Rising home prices can motivate owners to sell, increasing inventory.
Prices have been going up, but were still short of their housing-boom peaks in many areas as of November 2013, according to CoreLogic, a real estate data and analytics company in Irvine, Calif.
Prices aren't consistent throughout the U.S., however.
In 2013, prices in Colorado, Iowa, North Dakota, Oklahoma, South Dakota, Texas, Vermont and Wyoming and Washington, D.C. hit new peaks. But prices in Nevada, Florida, Arizona, Rhode Island and Illinois were still far lower than their peaks last year.
Market observers like Keith Gumbinger, vice president of HSH.com, believe the home-price gains we witnessed in 2013 won’t sustain throughout 2014. “Overall, we expect the recovery in housing markets to persist in 2014, but in a context of flattening gains for home prices, higher inventory levels and firm mortgage rates and underwriting standards.”
For more information, read: HSH.com's 2014 Outlook: Nine factors for '14
No. 2: Home equity returning
Rising home prices can float homeowners into a positive equity position, enabling them to sell without the added challenges of an underwater mortgage.
CoreLogic Chief Economist Mark Fleming explained that rising prices helped homeowners regain lost equity in 2013. Negative equity is expected to decline further this year as housing markets continue to improve.
Again, though, local markets aren't all the same. In fact, just five states -- Nevada, Florida, Arizona, Ohio and Georgia -- accounted for over 36 percent of the country's negative equity, according to CoreLogic.
No. 3: Foreclosure sales shrinking
Bank foreclosures also contribute to the supply of for-sale homes. But the supply of these properties, known as "shadow inventory," is drying up.
"The shadow inventory continues to decline, decreasing at an average monthly rate of 46,000 units over the last year," Fleming said in a release. "There is more to be done, but the trend is in the right direction."
Different states once again have different situations, however.
Florida, Michigan, California, Texas and Georgia accounted for almost half of foreclosures completed nationally in the 12 months ended November 2013, while Washington, D.C., North Dakota, Hawaii, West Virginia and Wyoming had the fewest foreclosures during that period.
No. 4: More new homes will help
Construction of new homes also boosts for-sale inventory.
Housing starts rose to a five-year high in 2013, providing fresh evidence of the housing recovery's persistence, according to David Crowe, chief economist of the National Association of Home Builders, a trade group in Washington, D.C.
"With 2 million residents in Southern Nevada, we normally need about 15,000 (homes) on the multiple-listing service," says Paul Bell, a Realtor at Prudential Americana Group in Las Vegas. "We are running at about 8,000 -- it's a nationwide trend because of the lack of construction starts in the last few years."
Rogers says construction is helping to alleviate the supply shortage in the Boston area, in part because infill projects sometimes result in two homes where only one previously existed.
"One single-family house that needed a lot of work was sold and now two big townhouses are replacing it," Rogers says. "It's taking a property that's not very palatable or marketable to buyers and by renovating it, adding a new housing unit -- or two."
More help from HSH.com
Home price recovery index: Which metros have improved the most, least?Have home prices in your area fully recovered from the declines suffered during the Great Recession, or are they still struggling to make it back to the peak it reached before the crisis?
Metro area definitionsMetro area definitions for the 27 metropolitan areas in "The salary you must earn to buy a home in 27 metros"
How to turn your home into a short-term rental
First-time homebuyer's guide to open housesOpen houses are a great way for first-time homebuyers to get out into the market and see what homes are available and to meet Realtors.