The supply of existing homes on the market remains low, at 5.2 months in March, according to a report from Freddie Mac.
The total number of homes offered for sale relative to the number of households in the U.S. has been running at the lowest level in more than 30 years.
"The housing recovery is struggling to shift into a higher gear, and obviously there are various imbalances holding this back from happening, but at the heart of the matter it comes down to jobs,” said Frank Nothaft, Freddie Mac vice president and chief economist.
But these low inventory challenges are the direct offspring of several features of today’s market.
1. Underwater homeowners
Since the Mortgage Forgiveness Debt Relief Act expired on Dec. 31, 2013, many underwater homeowners are reluctant to short-sell.
CoreLogic reported that 6.5 million homeowners remained underwater as of year-end 2013.
Meanwhile, there was also a sharp decline in short sales at the beginning of 2014, from 5.2% of sales in December to 2.2% of sales in February.
2. Low rates
Many borrowers were able to refinance into record low rates in the past several years.
According to the Bureau of Economic Analysis, the average interest rate on single-family mortgages outstanding was 3.9% during the first quarter of 2014, drastically down from the average 30-year fixed-rate average rate of 4.4% for new loans during the quarter.
As a result, homeowners are reluctant to sell their current home and forego the low rate mortgage loan they currently have.
3. REO sales slow
Despite real-estate owned sales remaining strong in some markets, in aggregate REO sales have slowed considerably over the past couple of years.
“A decline in the number of homes offered for sale at each price point over the past year is consistent with the trend in the number of sales and in house prices: A supply-constrained market (holding other factors constant) will result in a decline in the volume of sales and an increase in real transaction prices (that is, house prices rising faster than inflation for all other goods),” Freddie said.
And even though existing home sales are down 6.3% during the first quarter of 2014 compared with a year ago, house prices are up 8%.