Previously, foreclosures provided an overwhelming supply of homes that dragged down the market. Now investors are snapping up distressed properties at a rapid pace and converting them into rentals. The share of distressed sales -- foreclosures and short sales -- is now only 33% of all sales, compared to 44% recorded a year ago, according to a survey from Campbell/Inside Mortgage Finance. The inventory of existing homes for sale represents 5.2 months of supply, up from 4.7 in March, but still below the 6-month mark that is considered a good balance. Still, the shortage of inventory is contributing to a rise in home prices, which creates an interesting feedback loop. As home prices rise, more and more homeowners are pulled from underwater. The national negative equity rate dropped to 25.4% of homeowners with a mortgage in the first quarter of 2013, down from 27.5% in the fourth quarter of 2012 and 31.4% a year earlier.
During the first quarter, 730,000 homeowners were "freed from negative equity." In regions particularly hard hit by the housing bust, including California, Florida, Arizona and Nevada, "there has been a negative equity feedback loop, as regions with high negative equity have experienced acute inventory shortages brought on in part by locked-in underwater homeowners, and these shortages in turn have produced home value appreciation spikes, which have been reducing negative equity at a fast pace," according to Zillow.