The gap between the visible supply of houses and the total housing supply remains such that borrowers may start to compete for well-kept, vacant homes.
Goldman Sachs (GS) is also warning clients that REO investors are bidding up for shrinking reserves of properties. This will also likely push prices higher, "even with little improvement in the fundamental economic underpinnings," analysts said in a research report.
Meanwhile banks are increasing turning to short sales to maximize returns, which also means smaller price discounts.
For homes in good working order, steep price discounts are becoming more unlikely in the face of growing demand.
"In the near-term, the shrinking supply of homes available for sale implies higher bidding prices among potential buyers, and therefore, higher house prices," they say.
The property appreciation will likely still be modest. Goldman Sachs expects prices to rise only one or two percent in the near term.