Widespread shortages in housing inventories, especially in states that have experienced large price declines since 2006, are reducing the time homes for sale are spending on market, especially move-in ready foreclosures (REO) .

REOs that need no major repairs or renovations to be resold or occupied are increasingly being snapped up, with an average time on market of just 10.6 weeks in May, the lowest of any property category, according to the latest results of the monthly Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Inventory shortages are caused by homeowners holding their homes off the market while hoping for a rebound in prices, and by homeowners that are underwater on their mortgage and effectively locked in place. For the distressed property categories, a shortage of attractive inventory is caused by slow processing at mortgage servicers.

Average prices for home purchases were mixed from April to May, shown in transactions reported by HousingPulse survey respondents. The average price for non-distressed properties rose 1.7 percent from April to May, while the average price for short sales slipped 0.7 percent. For damaged REO the average price increased 1.8 percent and for move-in ready REO the average price fell 1.5 percent.

“Inventory in Orange County CA is super low. During the top of the housing scare, the city that my office is located in had almost a 6 month supply of unsold homes. Currently it is down to just 45 days!” reported a real estate agent in California. “Inventory in the Santa Clarita Valley (35 miles north of LA) is very low. We have less than 500 listings, which is well below the 1,500-1,800 properties we average,” added another agent in the state.

One factor continuing to balance inventory shortages is the high share of distressed properties, especially short sales. The total share of distressed properties in the housing market in May, as represented by the HousingPulse Distressed Property Index (DPI), was 46.1 percent, using a three-month moving average. This was the 27th month in a row that the DPI has been above 40 percent.

Appraisals are another factor keeping a lid on prices. “Appraisals that are less than agreed-to contract sale price are inhibiting natural valid appreciation,” complained an agent in Florida. “Appraisal issues are holding back some sales and price increases although many buyers seem willing to pay a cash difference to close on properties that do not appraise [high enough],” observed another agent in Florida.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,500 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.