Real Estate Prices Up - Inventory Down

The housing market, which has struggled with an oversupply of homes for years, faces a new problem now: a lack of attractive inventory.

There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from Realtor.com. That is the lowest level since the company began its count in 2007.

The report is indicative of how the U.S. housing market just can't seem to catch a break. While falling inventories normally are a sign of health, because reduced competition can boost prices, that isn't the case right now.

Instead, people are pulling their homes off the market rather than try to sell them at today's discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn't driving up prices because demand is soft.

The drop in inventory also suggests there are fewer opportunities for buyers and sellers to make deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about underpricing their homes.

The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don't include unsold homes listed as "for sale by owner" or other properties that don't find their way onto the multiple-listing services.

Mortgage rates have fallen to their lowest levels in decades, but demand remains weak and credit standards tight. According to the Mortgage Bankers Association, mortgage applications for home purchases were 3% below year-ago levels during the first week of October.