Would-be homebuyers are increasingly encountering a startling fact - the inventory of homes available for purchase is noticeably shrinking.  Compared to the number of homes available for purchase at this time last year, the supply has fallen dramatically.  The affect of this lack of inventory?  Prices are increasing and the number of total sales has dropped

Major metropolitan areas across the nation are bearing the brunt of this trend, and in some markets there has been a decrease of 50 percent or more from last year's numbers.  This has been especially true in Southern California.  In Los Angeles, inventory has dropped 49 percent, while San Diego has seen a drop of 53 percent.  By comparison, Seattle is off 41 percent, while its nearby suburbs are down 28 percent

Reports from the National Association of Realtors show that inventory is down by 24 percent nationwide.  Markets in the low and mid range prices are feeling the drop more intensely than high-priced markets

In other parts of California, demand is so strong that bidding wars have erupted.   Silicon Valley inventory is down so dramatically that many properties receive 40 to 50 offers.  Here, some buyers are including escalation clauses in their contracts in order to compete with counter-bids.  Some buyers are even agreeing to increase down payments to offset differences between the appraised value and the accepted sale price.  One home that was recently listed for $879,000 had more than 50 offers and eventually sold for just over $1 million - in cash - in less than a month

Reports indicate that some of the biggest drops in inventory are occurring in markets that were hit hardest during the housing market decline.  Many homeowners in these areas have negative equity.  Two such markets are Phoenix and Miami, where 55 percent and 46 percent of homeowners are still underwater on their mortgages.  This has led to higher home prices - Phoenix prices are up more than 14 percent while Miami is up more than 9 percent

Experts suggest that the recent decline in inventory is due in large part to negative equity.  Homeowners are hesitant to sell if they know they will take a big loss, especially since prices are beginning to rise.  Banks that hold many foreclosures are also holding on to their properties.  It is estimated there are up to 1.5 million properties currently in this holding pattern

We're likely to continue seeing more of the same, at least for the foreseeable future.  Declining inventory will continue to drive prices higher, particularly in areas where demand is strong.  For the long term, however, these price increases will eventually convince more homeowner's to sell which will effectively stall this growth

What does this mean to anyone that is looking to buy a sell a property right now?  Although markets vary, overall sellers are in a much stronger position than they have been for some time