Why housing has a supply problem

The housing market was still underperforming in February, according to the National Association of Realtors. With just a slight bump up from January, total sales are still running below expectations for the year. Don't blame winter weather, though. Blame the lack of supply.

There are just 1.89 million homes for sale, which is down from a year ago and well below current demand. The number of listings from January to February historically rises about 6 percent, but this year it inched up less than 2 percent.

This is "all about inventory," said Lawrence Yun, chief economist for the Realtors. "Smaller local builders are not in the game. They don't have access to credit."

Larger builders are catering more to higher-end buyers, and that leaves very little for lower-end, first-time buyers to move into. Move-up sellers don't help, because the minute they sell, they buy, so the supply needle doesn't move.

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Lack of supply is pushing prices again, up 7.5 percent year over year to a median sale price of $202,600 in February, according to the Realtors. Yun calls this reacceleration of price gains, "unhealthy." Affordability had been helping the housing recovery inch along, but now it is weakening and fast becoming a roadblock to homeownership. Still-rising rents are contributing to the problem, keeping first-time buyers from being able to save for a down payment.

The number of listings should bounce higher in the coming months, but price will govern sales. Today's buyers are cash-strapped and still sticky about value in a post-crisis environment.

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"What has mattered the most is the lack of first-time households interested in buying relative to renting," noted Peter Boockvar, managing director and chief market analyst of The Lindsey Group. "This will change at some point, and we'll get a nice rebound in housing, as household growth continues and rents get too expensive. A slowdown in the pace of home price gains though is needed."