One reason, among many, that this housing recovery has so far been tepid by historical standards is that potential home buyers often couldn't find what they wanted because inventories of unsold new and existing homes were so low. In fact, for the last three years the supply of new and existing single family homes for sales has hovered around 4 months, well below the 7.2 month 30-year average (see chart).

Why were inventories so low? There were two reasons. One, as long as home prices were depressed, many existing homeowners chose to stay put. And, two, with sales depressed, many builders chose not to build. Both were perfectly rational decisions.

So the recent buoyant reports on home sales and housing prices are probably game-changing. In March, according to the S&P/Case Shiller index, year-over-year housing prices were up 11%, the biggest increase since April, 2006. In addition, in April, new home sales were up 30% year-over-year, and existing home sales were up 10%.

Higher prices and strong demand should break up the log jam caused by low inventory. That's an opinion shared by one of my favorite housing analysts, Stephen East of ISI. He forecasts that by the end of this year housing starts will reach the annual rate of 1.3 million units.

That would be good news indeed.