(Read More: Home Price Gains Go to Double Digits)

First-time home buyers will be hit hardest by rising rates, just as they were beginning to trickle back into the market. They made up just 29 percent of buyers in April, according to the National Association of Realtors, the lowest level in two years. Historically, they usually account for about 40 percent of the market.

The 30-year fixed mortgage hit a record low rate of 3.47 percent in December of last year. Even though it is still well below historical norms, this small rise is already taking its toll.

“In my world it’s clearly slowing the market and pricing. Right now I have properties that are well-priced yet sitting on the market unsold,” said David Fogg, a real estate agent in Burbank, CA. “Should rates continue to rise, values will likely soften.”

(Read More: Borrowers Becoming Accidental Landlords)

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100772471

Supplies are down across the nation, not just in the former crash markets, like Phoenix and Las Vegas, where investors decimated inventories of distressed homes in bulk purchases. Listings are down 31 percent in Seattle from a year ago, down 32 percent in Denver, down 20 percent in Houston, down 37 percent in Boston, according to local Realtor associations.

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“At the moment it’s a seller’s market again,” said David Fogg, a real estate agent in Burbank, CA. “Very low inventory, very low interest rates, almost no bank inventory of homes, it’s crazy out there. Every good property I’ve listed this year has brought 10-50 offers and sales prices 10-20 percent over comps. Cash is King.”

Nearly one third of all existing home sales in January were paid for in cash, and not just by investors, who are making up a shrinking share of the market. Fierce competition is forcing buyers to use every advantage, given that so many are going after so little.

In California’s San Fernando Valley there are usually over 9,000 homes for sale this time of year, according to real estate agent Billy Wynn. Today there are just over 1,400.

“Realtors are getting so many offers they are taking the homes off the market and not accepting additional offers before any offer is even accepted,” said Wynn. “This is real estate bubble 2.0 on steroids.”

It is a puzzling situation, given all the warnings of a tsunami of so-called “shadow inventory” that was supposed to be flooding the market right now. As it stands, fewer distressed properties are coming to the market.

“The ticking time bomb of shadow supply has been diffused by a combination of foreclosure processing delays in judicial states, legislation slowing down the foreclosure process in non-judicial states, foreclosure prevention programs and initiatives encouraging short sales,” said Daren Blomquist of RealtyTrac. “Notably, in 2012, was the National Mortgage Settlement, which both encouraged foreclosure prevention and short sales as an alternative to foreclosure, and the loosening of short sale guidelines by Fannie Mae and Freddie Mac in November.”

As a result, short sales, where the home is sold for less than the value of the mortgage, are rising as a share of total distressed sales, while bank-owned home sales are falling. Investors are now competing for such little supply that they are ironically pricing themselves out of the market.

(Read More: Distressed Homes Still Drive Sales)

“We are hearing also, that new home buyers are not really looking at the foreclosure market—the houses are either not in good neighborhoods or the house is in bad condition and needs a lot of updates,” noted Paul Miller, an analyst at FBR. “So home buyers are either going to new-builds or being very picky with the type and shape of the house. We are hearing from plenty of mortgage brokers that they are working with many couples, and they just can’t find the perfect house.”

Article source: http://www.cnbc.com/id/100512238