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Without question the U.S. housing market has experienced a strong recovery since the depths of the recession. Still, despite historically low mortgage rates, significant price appreciation, and a marked improvement in economic activity, home sales are not as robust as they might be. The primary culprit is perhaps an unexpected one: a shortage of houses on the market.

The National Association of Realtors reported an unexpectedly sharp 7.1 percent monthly drop in existing home sales in February. Year over year, sales were up 2.2 percent but continued to lose momentum compared with the past few years. According to the chief economist at NAR, the main factors weighing on activity were supply shortages and declining affordability.

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Photo — Please put this mug shot of Chris Hopkins of Barnett & Co. in our system to use every other Wednesday when it will run with his column.

The Chattanooga market outperformed the national averages by about three to one, but anecdotal reports from real estate professionals in the area confirm that the dearth of homeowners willing to list their homes for sale is impeding stronger sales growth. Many markets around the country, including Chattanooga, are seeing a sharp increase in the number of multiple offers, as buyers compete for scarcer supply within a diminishing pool of sellers.

Given the recovery in prices and the improvement in market conditions, one might expect more homes to come on the market. Yet just the opposite is occurring. So what is driving the shortfall in listings?

Real estate data firm Trulia has launched a fascinating quarterly survey of market conditions, dubbed the Inventory and Price Watch. Results from the latest edition highlight some interesting factors.

Most concerning is the evidence regarding starter homes. These are homes that are within reach of first-time buyers with median income and sufficient down payments. Inventory levels of starter homes for sale have fallen precipitously over the past four years, forcing many would-be first timers to delay their dream of ownership. Nationwide, the number of starter homes for sale declined by a startling 43 percent since 2012, spurring a jump in median prices from $117,000 to today's $154,000, a 7 percent compound annual increase far in excess of inflation or income gains.

In some markets, particularly the West but also some Southern cities, the collapse of inventory has been astounding. Salt Lake City, San Diego and Nashville all saw the available supply of starter homes crash by 80 percent or more since 2012.

As in all of economics, supply and demand dictate price. As prices have risen, payments on a starter home now consume 37 percent of median family income compared with just 32 percent four years ago. Clearly this has priced homeownership beyond the reach of many Millennials.

The pattern has been similar with so-called "trade-up" houses, according to Trulia. The inventory of homes typically purchased by second-time buyers has also diminished by 41 percent, driving up prices in this segment as well as those for more expensive premium homes.

Two interesting factors lie behind the inventory shortage. First, while many homeowners in more expensive homes find themselves with positive equity, a greater percentage of lower-priced homes are still under water, precluding their owners from listing for sale.

Second, after the housing meltdown of 2007, many homes in this price bracket were purchased by investors and converted to rental housing, further reducing the supply of homes for potential sale and crowding out first-time buyers.

As frustrating as it may seem, the cure for this imbalance is time. Markets impartially seek equilibrium in the absence of government intervention, and the inventory shortages will eventually recede and afford first time buyers the opportunity to secure their piece of the American dream. Save your money, reduce your debt, and bide your time until the opportunity arises.

Christopher A. Hopkins, CFA, is a vice president and portfolio manager for Barnett & Co. in Chattanooga.

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