In the third quarter of 2012, the percentage of homeowners with a mortgage in negative equity - or "underwater," owing more on their mortgage than their home was worth, fell below 30 percent for the first time since Zillow began tracking that data using an improved methodology in early 2011.

Because underwater owners have a far more difficult time selling their home, a large number of homes that otherwise might end up on the market aren't getting listed. As a result, inventory in many areas is incredibly tight, leaving buyers to fight it out amongst themselves, which in turn can help drive up prices.