Finding an affordable home in the U.S. tends to be a challenge no matter where you're looking. No wonder many buyers have turned to the possibility of buying a short sale home, despite the complexities and delays associated with such sales. (A short sale is one in which the seller obtains the lender's agreement to sell the house for less than he or she owes on it, and to pay off only part of the loan with the proceeds.)
However, the number of available short sales is on the downswing, and perhaps not for the reasons you might think. It's not that the economy has risen enough to bring most homes' values back to the level of the outstanding loans. (If you believe Zillow -- which not everyone does -- approximately 19% of homeowners are still "underwater" on their mortgages.)
No, the main reason is, according to a Wall Street Journal report ("Drop in Short Sales Trims House Inventory," by Joe Light), that Congress hasn't acted to extend the Mortgage Debt Forgiveness Debt Relief Act, which expired at the end of 2013. That Act excused sellers from paying taxes on the amount of the debt forgiven by the lender. Without that Act in place, the forgiven debt is considered a profit, upon which the IRS can collect income taxes. Ouch.
So, some sellers are apparently skipping the short sale prospect and going straight to foreclosure -- or just hanging tight in hope that something changes. If you're a home buyer, that translates to fewer homes on the market for you.