Falling property values account for shrinking inventory

The rate of home sales has risen on an annual basis during the past nine months

The rate of home sales has risen on an annual basis during the past nine months, but as the housing markets enters its peak selling season, a number of industry experts are concerned about declining inventory levels, The Wall Street Journal reports.

Real estate data from the National Association of Realtors indicated in March the home inventory thinned 1.3 percent from the previous month, and 21.8 percent from a year earlier.

"Buyers have come out early, but sellers haven't," Well Fargo senior economist Mark Vitner told the newspaper.

Falling property values

With home prices nearly 30 percent lower than they were at the housing market's peak and mortgage rates holding near all-time lows, a number of prospective buyers tried their luck in the marketplace during the winter season, which is normally a low point for the industry. In addition, a rise in median household incomes, as well as improvements in consumer sentiment, are providing the safety and soundness households need to make the transition to homeownership.

Meanwhile, as conditions continue to lean in favor of buyers across the country, the same can't be said for sellers. As noted before, property values are reaching their bottom, so many homeowners who invested in property at the peak of the housing bubble would take a significant loss by selling their home right now. Roughly 15 percent of all homeowners are currently underwater on their mortgage, which takes selling out of the picture. As a result, these households are staying put, says the WSJ, as they wait for condition to improve, creating less of an inventory.

Investor activity

Additionally, another factor behind the thinning inventory is a result of investor activity. After waves of foreclosure created a large backlog of distressed properties, a number of investors bought many of these homes at bargain prices. However, rather than fixing them up and reselling them for a property, many of these foreclosed houses were converted into affordable rental units. In the wake of the housing market collapse, the rental market surged, making this option a more profitable choice for investors.     
The future

A number of experts agree that investors are playing a more substantial role in the housing market today than in the past. However, as they continue to capitalize on these homes and convert them into rentals, subsequently leaving a shrinking inventory behind them, there could be a slower overall real estate recovery in the coming years.

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