The Incredible Shrinking Housing Inventory?

The supply of residential properties available for purchase dropped 8.6 percent over the past year, according to new data released by Zillow—and the three-month low in January’s housing starts may not bode well for this year’s inventory.

The inventory shortage is more pronounced in some areas: Zillow reported that Atlanta saw the largest increase in available homes for sale (6.8 percent) while San Diego saw a 30 percent year-over-year evaporation.

"If you're looking for a home or trying to sell, it's important to know what kind of market you're in," said Zillow Chief Economist Svenja Gudell. "Hopeful buyers in a strong sellers' market should be prepared to move quickly, since homes don't stay on the market as long. In a buyers' market, they can afford to take their time and be more selective. However, low inventory is a factor affecting the majority of the country, so buyers should be prepared for a limited selection as we enter the homebuying season."

The top sellers’ markets, according to Zillow, were mostly the nation’s priciest: San Jose and San Francisco topped that list, followed by Denver, Seattle and Nashville. Philadelphia was named the top buyers’ market, followed by Chicago, Baltimore, Connecticut’s capital Hartford and the combined New York City-Northern New Jersey market.

But for those already in homes, there was good news: The latest Zillow Home Value Index reported values rose year-over-year last month by 4.2 percent, marking the tenth straight month of home value appreciation. The Zillow index now stands at $184,000.