As the housing market enters its peak buying season that occurs in the spring and summer months, a number of industry experts are concerned about the shrinking inventory, The Wall Street Journal reports.
Home buying activity has increased significantly during the past nine months, resulting in a 1.3 percent decline in the inventory from a month earlier and leaving it 21.8 percent smaller than a year earlier.
"Buyers have come out early, but sellers haven't," said Wells Fargo senior economist Mark Vitner, according to the newspaper.
The relationship between home prices, mortgage rates and median household incomes made purchasing property very affordable during the winter months. This subsequently resulted in a number of buyers, who normally would have waited for the summer, to make the transition to homeownership at an unexpected time.
Falling home prices
Meanwhile, property values have fallen by as much as 30 percent in some housing markets since the recession, leaving a number of homeowners significantly underwater. In fact, data from the National Association of Realtors estimates that roughly 15 percent of current households are saddled with negative equity. If the owners of these homes were to put their investments on the market, they would most likely have to sell for less than they originally spent, resulting in a significant loss. Because of this, many households are opting to stay put while they wait for home prices to appreciate, resulting in fewer homes for sale.
Real estate investors
Additionally, investors are starting to play a much bigger role in the marketplace. In the wake of the housing market collapse, there was a high level of foreclosure activity, resulting in bargain prices across the country. Investors started buying up these distressed properties in bulk, and rather than fixing them up and reselling, they were converted into affordable rental properties.
Since the market currently weighs in favor of buyers, investors determined this was the more profitable plan of action, as rental rates have surged in recent years. However, this has had a negative effect on the size of the housing inventory.
As the supply thins, making the transition to homeownership while there are still a number of options available might be a good plan of action to take sooner rather than later.