Inventories are tightest on the low end of the market, where investors came in and bought most of the distressed properties and are now holding them as single-family rentals. There is about a four-month supply of homes priced under $100,000, while there is around a twelve-month supply of homes priced over $500,000. That’s why sales of those low-end homes are down 16 percent from a year ago, and sales of higher-end homes are up 25 percent, according to the Realtors.

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“The housing shortage is going to continue,” claimed Yun, who says the builders need to ramp up housing starts by 50 percent. He admits that is unlikely to happen due to land, labor and supply constraints.

Weak supplies are pushing home prices up far faster than wage growth, which is keeping first-time buyers especially on the sidelines. These buyers made up just 30 percent of the market in March, compared to the historical norm of 40-45 percent. They just can’t compete with all cash investors.

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But if prices get too high, investors could leave the market. Their share was already down in March to 19 percent compared to 22 percent just one month ago. The danger is that they will start to unload the homes they own, which would bring much-needed supply back but which could also turn home prices in the other direction.

Article source: http://www.cnbc.com/id/100660999