By Cory Hopkins

After almost two straight years of declines, the overall number of homes listed for sale is finally rising. But for low-income and first-time buyers, the number of lower-priced homes for sale continues to fall in most areas as high investor activity and high negative equity conspire to keep those homes off the market.

The inventory of all for-sale homes listed on Zillow nationwide spiked in May, jumping 11.8 percent year-over-year and 4.3 percent from April. Inventory of all homes for sale has risen in each of the past three months according to the May Zillow Real Estate Market Reports.

“It’s good to see overall inventory rising,” said Zillow Chief Economist Dr. Stan Humphries. “It’s likely that many would-be sellers have decided to capitalize on recent home value gains, particularly as the pace slows, and list their home for sale now in order to move into a new home while mortgage interest rates remain low.”

But most of those gains in inventory were made among homes priced in the middle and top one-third of home values. The number of homes available for sale in the most affordable price bracket, those homes most sought by first-time and lower-income homebuyers, fell year-over-year in 28 of the nation’s largest metro areas analyzed by Zillow.

“Persistent inventory constraints at the low end of the market continue to make it a tough environment for first-time and lower-income home buyers. Low inventory and high demand can lead to rapid price spikes, which make homes even more difficult to afford for many buyers,” Humphries said. “Hopefully the inventory gains we’re seeing in the middle and upper tiers of the market will begin trickling down to the most affordable homes soon.”

In addition to low numbers of affordable homes for sale, first-time and lower-income home buyers armed with traditional financing are also competing with all-cash buyers at the lower end of the market. Zillow recently reported that in 27 of the top 30 metros analyzed by Zillow, more than one third of all sales of the lowest-priced homes were made with cash. In three of the top 30 metros — Tampa, Detroit and Miami — more than 80 percent of all sales in the lowest price bracket were cash deals.

High negative equity is also keeping the most affordable homes off the market. Underwater homeowners, those that owe more on their mortgage than their home is worth, can have a very difficult time listing their home for sale. According to Zillow’s first quarter Negative Equity Report, the most affordable homes in the bottom price tier are roughly three times more likely to be underwater than those in the top price tier.

National home values in May were up 0.1 percent from April to a Zillow Home Value Index, or ZHVI, of $172,300, and have now risen for 28 consecutive months. Year-over-year, U.S. home values rose 5.4 percent in May, the slowest annual pace of appreciation in more than a year. For the 12-month period from May 2014 to May 2015, national home values are expected to rise another 2.9 percent to approximately $177,321, according to the Zillow Home Value Forecast.

National rents fell slightly in May from April, down 0.1 percent to a Zillow Rent Index of $1,310. Year-over-year, national rents were up 2.3 percent in May.