Tight home supply remains a top challenge for house shoppers, but the slowing pace in which inventory is declining could signal more favorable conditions for homebuyers.

Housing inventory, while still descending, fell 4.8% year-over-year in June, according to Zillow's Real Estate Market Report. This is a considerably smaller drop than when it plummeted 12.3% annually last June.

Limited housing supply, which continues to be outpaced by buyer demand, is forcing property values upward, pricing some potential homeowners completely out of the market. And while higher house values may seem like a good incentive for sellers to list their homes, many fear the possibility of not being able to find another house in an environment with tight supply and pricier properties.

Housing inventory declining

The national median home value rose 8.3% to $217,300 in June from a year ago. But as the pace of falling supply slows, house prices are only expected to appreciate 6.6% through next June, according to Zillow estimates.

Still, in 21 of the country's 35 largest housing markets, the median property value has surpassed its prerecession peak.

In some markets where home prices appreciated much faster than the national pace, inventory also fell at a much greater rate. In Atlanta, for example, home supply sank 15.7% while values grew 11.6%.

Other markets, however, saw home prices grow at a weaker pace than the rest of the country, and actually experienced growth in inventory. In Portland, Ore., property values only increased 5.9% year-over-year in June, helping inventory shoot up almost 19%.

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