Intero Insider: Housing Supply Is the Thorn in the Market

The latest highly watched report on housing from the National Association of Realtors showed a healthy 10% increase in home sales in February from a year ago, and an 11.6% rise in prices during the same period. This is all good news, of course. Upon hearing the news, many media outlets immediately started talking about how the market clearly has turned for the better, recovery is in full swing and things generally should be improving.

There's just one small detail that we need to take a look at: inventory.

According to NAR, the supply of homes for sale in February increased 9.6% from January to 1.94 million homes, representing a 4.7-month supply. However, the listed inventory was 19.2% below what it was a year ago when there was a 6.4-month supply.

A 19.2% drop in inventory from a year ago at a time when interest rates are at the their lowest and buyers are ready and willing to purchase is definitely not good news. In fact, this is a serious situation.

Forget rising rates, lending restrictions, lack of jobs and a slow economy. The real threat to housing this year is a lack of homes for sale.

When you have qualified buyers ready to make a move who have nothing to buy, this is a problem. While the lack of supply would seem to be a good thing for home sellers who benefit from the bidding competition, it's not good for the overall market.

The good bit of news for supply, however, is that housing starts are on the rise. The Commerce Department said last week that starts for single-family units in February edged up 0.5% to their highest level since June 2008.

Also, permits for future home construction rose to a 946,000-unit rate, the quickest since June 2008. And home building added to national economic growth last year for the first time since 2005.

Home building is what we'll need to watch closely this year. Increased activity and growth in this sector could help counter the problems with inventory in some markets.

In the meantime, if you're in a market with tight supply, you just have to hang in there and move fast. Be prepared with your down payment and loan qualification and work with a Realtor who knows the local market inside out and you'll get the home you've been waiting for. It just may take a bit more patience.