The climate for buying residential real estate in America changed dramatically during the eight months between August 2012 and May 2013. Six years of recessionary housing markets ended and the housing recovery kicked into high gear. Year-over-year price increases entered double-digit figures for the first time in a decade. Inventories of homes for sale were down 18.68 percent compared to 2011 and 40 percent below the peak in September 2007 i. Inventories continued to fall as summer ended. They improved only a point or two when the spring buying season arrived.
Inventory shortages were more serious in lower price tiers, making it very difficult for first-time buyers to take advantage of historically low-interest rates below 3.5 percent. High levels of negative equity kept one out of five homeowners frozen in place and unable to sell, driving down inventories, especially among lower-priced homes. Declines in foreclosures and REOs inventories caused by a multi-year decline in foreclosure starts to put upward pressure lower-tiered properties more than more expensive homes.