(Read More: Housing “Stuck” Due to Short Supply)

“We are pricing our homes and limiting the number of lots we’re releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities,” wrote Meritage CEO Steven J. Hilton in the company’s quarterly earnings release.

Meritage is not the only one, as limited supply of new and existing homes pushes prices higher across the nation. It may seem counterintuitive to stop building in such a scenario, but apparently it is making business sense.

(Read More: Housing Recovery to Face Test as Builders Report)

“Many builders are starting to limit production,” noted Megan McGrath of MKM Partners. “I think raising prices is one part of the equation, but I also think there is the issue of limited labor and finished lots at play.”

With the housing crash so deep and prolonged, the big builders may have been caught off guard by the swiftness of new housing demand. Few predicting the inventory shortfall, and it is still unclear how long that shortfall will last. Builders are in the business of selling homes, but they also need to be in the business of staying in business and delivering to shareholders. If slower production amid rising demand equals higher prices, then that may just be the new normal.

—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/100673946

In their most recent quarterly statements, all of the largest public home builders reported large annual jumps in the average prices of their homes sold. Pulte’s prices jumped 6 percent to $287000, for Lennar it was a seven percent surge to 261,000 and Meritage led the group with a 17 percent annual jump in average sale prices to $323,000.

(Read More: Soaring Housing Stocks in Perspective)

“New home prices are advancing faster than existing home prices because demand has increased and, as Kim did admit, the mortgage filter is allowing only higher income or at least higher net worth people through the application net, and they are purchasing higher valued homes. But that is true of existing purchases as well,” argues David Crowe, chief economist for the NAHB.

Crowe also makes the argument that new home prices are dictated by costs and demand. Both, he says are rising.

(Read More: New Housing Fears:Home Prices Are Rising Too Fast)

“Lumber and other building material prices have risen very rapidly recently. Shortages of lots and labor supply are beginning to show up, and I expect as new household formations begin to recover, that shortage will expand to more markets. The way to get more resources back into the housing market is to raise the price paid, i.e., wages and land prices,” says Crowe.

Builder profits, he notes, among the small private builders (who still control 70 percent of the market), have been negligible for several years.

“They will have to raise prices to compensate for their efforts, risks and, at least for a short time, being the only ones left,” adds Crowe

(Read More: Is the Refi ‘Apocalypse’ Really Upon Us?)

Article source: http://www.cnbc.com/id/100439451