By a number of indicators, the US housing market is bouncing back after its massive collapse of 2008. But US homeowner rates are at near historic lows, with few first time buyers. Among the many factors contributing to those low rates are an often overlooked, but essential one: in many areas around the country, there’s a housing shortage: the supply of avaialble homes to buy is lower than the demand. After the housing collapse put unprecedented numbers of homes into foreclosure and millions of homeowners into crisis, home prices have begun to rise, new regulations on the mortgage industry have reined in the reckless lending practices that contributed to the collapse and the recession that followed. In the years that followed the collapse, the inventory of available houses for purchase ebbed and flowed, as foreclosures crawled through the legal system. And when they did, banks and other financial institutions often auctioned them off in batches to large domestic and foreign investment firms, without offering access to individual buyers and investors. In some areas, too, the number of available homes to buy was affected by the “zombie: phenomenon: homes left abandoned by homeowners in trouble, but which hadn’t been formally foreclosed. Add to that a slow recovery for new home starts, and it’s easy to see how a chronic shortage of homes could shadow the nation’s recovery. But there’s another, often overlooked reason for low inventories in many markets around the country: people who own homes now aren’t selling them – and that’s creating a bottleneck that cuts off first time buyers and high end sellers alike. One aspect of the American dream of owning a home is the ”starter house.” In the traditional paradigm, young people save up enough to buy a modest first home – the starter where they’d begin raising children and creating a solid career. Then, when things were looking up financially, they’d move up to a bigger, more lavish house. That pattern might repeat a time or two before retirement, when they’d once again begin contemplating either moving up again or downsizing into a more manageable empty nest. But current economic conditions mean that that choice is less likely for many Americans. And, as a new article from Inman points out, understanding the dynamics behind the slowdown in selling is key to formulating predictions for the future of the housing supply and trends in home prices. The rise in prices have an indirect effect of chilling home sales, One reason has to do with US capital gains tax laws, which underwent a major change in May 1997. Before then, if a homeowner sold a house for a profit, that profit was automatically subject to a whopping capital gains tax penalty. The only way to avoid the capital gains tax was to put the sale money into a property if equal or higher value within two years. In 1997, though, that all changed, thanks to the Taxpayer Relief Act, which allowed for a one time tax exemption of up to $125,000 in capital gains. That meant that homeowners could sidestep the tax if they bought another house. But as prices rose, fewer could opt to move up to a pricier dwelling because their gains on their existing property would exceed the tax cap and therefore end up costing them money. Low interest rates also play a role in keeping homeowners from selling. If owners have refinanced a home thanks to those historic low rates it’s less likely they’ll be willing to put the property up for sale and risk facing higher rates on a new purchase. Those values are still not at peak, so as they continue to climb, those homeowners won’t be interested in selling. /   What’s more, according to Inman, changing property valuations since the crash sent those values plummeting could play a role in keeping houses off the market. Homeowners may be holding on to their prope