New listings of existing homes for sale were down 14% year-over-year in the first two weeks of January, according to Realtor.com, which tracks 143 markets nationwide.
In Phoenix, where prices were up 24% in November from a year earlier, new listings through the first three weeks of January hit their lowest level in 13 years, says Mike Orr, real estate expert at the W.P. Carey School of Business at Arizona State University.
That's bad news for buyers, and it means "prices need to go up more" to bring more sellers to market, Orr says.
Nationwide, the supply of existing homes for sale fell to 4.4 months in December, based on the current monthly sales pace, says the National Association of Realtors. That's the lowest level in more than seven years. A six-month supply is generally considered balanced between buyers and sellers.
Home prices in November were 7.4% higher on average than a year earlier, according to CoreLogic. Real estate experts had expected that rising prices would spur more sellers trapped by years of falling prices.
Instead, January's listing data "is the same sad story," says Glenn Kelman, CEO of online brokerage Redfin. If sellers don't have to sell, "they're holding on, thinking they'll wait for prices to go up even more."
Redfin's data, covering 19 major markets mostly in the West, shows new listings down 29% the first two weeks of January vs. last year.
Scarce sellers aren't the only driver of shrinking supplies. There are fewer distressed properties for sale. Foreclosure sales were down 7% through the first nine months of last year from the same period in 2011, RealtyTrac says.
Meanwhile, demand is up. Existing home sales were up 9.2% last year, NAR's preliminary data show. New-home sales rose almost 20% in 2012, the government reported Friday, while supply fell to 4.9 months in December from 5.4 months a year before.
New home construction is still weak. In each of the past three years, builders completed fewer than 500,000 single-family homes. That's less than half the number built annually between 1993 and 2007, according to the Census Bureau.
Home builders would need to double production this year to alleviate the tight supply, estimates Lawrence Yun, NAR's chief economist. That's not expected.
Home supplies nationally will stay at about the five-month level much of the year, Yun predicts.
Some markets are far below that.
California's supply of existing single-family homes for sale stood at 2.6 months in December, the California Association of Realtors says.
"Nobody is selling because no one has anywhere to go," says Barbara Hendrickson, of Red Oak Realty in Berkeley, in the San Francisco Bay Area, which had a 1.8-month supply in December.
The low supply is feeding bidding wars. One of Hendrickson's clients recently lost a bid despite offering $130,000 above the home's $775,000 asking price, Hendrickson says.
Whether the supply of homes for sale will expand to meet rising demand is a "big question for the market" in 2013, says Jed Kolko, economist with real estate website Trulia.
This year is also the first since the housing bust began that falling inventories are not necessarily a good thing, he says.
Listings may still swell in time for the busy spring selling season, says Stan Humphries, Zillow economist.
He says listing activity next month will be key. If it doesn't pick up by then, the spring season is likely to bring a lot of price increases, he says.