It’s especially hard to find a home to buy right now – and it could get worse for millennials

Home shoppers might have an especially hard time finding the house of their dreams this spring.

According to real-estate site Zillow, there are 3% fewer homes on the market than there were a year ago.

The largest drop in inventory has happened in Minneapolis, Cincinnati, and Detroit. In Minneapolis, for example, there are currently 18% percent fewer available homes than there were a year ago.

Homes are also spending less and less time on the market. Nationally, it takes an average of 103 days for a home to sell, compared to 144 days in 2010. That number is now as low as 54 days in hot markets like Seattle, Denver, and Sacramento, where bidding wars have become common. Nationwide home values are up 7% over last year.

There are a few factors that could explain why this is happening.

The first is a bit of a self-fulfilling prophecy. A real estate market where inventory is tight tends to favor the buyer who can afford to negotiate and wait until the right offer comes along. However, at the same time, many homeowners are holding off on listing their homes for sale because they want to avoid entering a competitive buyer’s market.

“Inventory tightness is reinforcing inventory tightness,” Skylar Olsen, Zillow’s senior managing economist, told Business Insider. Olsen added that competition is especially strong in the lower third of listed homes, partly because there is still a relatively high rate of negative equity – a holdover from the financial crisis.

According to Zillow, some 5.1 million Americans owe more on their home loans than their home is currently worth. These people are less likely to list their homes because it’s difficult to sell a home that’s underwater.

“Homes that are in the lower third of properties are twice as likely to be underwater still,” Olsen said. “If we had a steady stream of new homes coming onto the market, we might be able to break out of this cycle, but we haven’t seen new home [production] return to pre-recession levels. It hasn’t even returned to the relatively steady rates of the ’80s.”

Though the pace of building has increased recently, new home construction has not caught up to historical average levels because land and labor are still very expensive. And for many homebuilders who overbuilt prior to the recession, the bubble’s bursting was traumatic.

“Subdivisions were put in, and they languished on the market – there was a lot of wasted production,” Olsen said. “The construction industry as a whole is now going for higher margins and lower volume. Some of the larger builders don’t have much of an incentive to build out a larger volume of homes because their margins would fall.”

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All of these factors are converging as millennials, the nation’s largest living generation, are buying homes for the first time. Right now, the median age of a first-time homebuyer is 33. Millennials – defined by Zillow as being between the age of 18 and 34 – are 56% of America’s first-time homebuyers (the largest age demographic), but the bulk of millennials are still very young and not making those big life decisions just yet.

Still, interest rates have been low, which has made buying an enticing option for long-term renting millennials.

“As they do come online, millennials might want to consider skipping entry level and going into a ‘forever’ home,” Olsen said. “They might have to compete with boomers who are downsizing into the same kind of housing stock. That collision will mostly happen in that entry-level segment.”

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