The decline in inventory helped boost home prices in 2012 and has in large part factored into analysts' upward revision to home price forecasts for this year.
But declining affordable housing inventory is said to have been behind the huge decline in December's pending home sales index.
In a press release, Lawrence Yun chief economist at National Association of Realtors said "supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options".
Yun said the month's supply was lowest in the West, where the index fell 8.2 percent on the month. Supply was down to 3 months, while prices were up 17.3 percent.
"The month(ly) supply is the lowest in the West region, and it is the west region that is seeing the strongest price increase," he said. "Clearly implying that it is supply restrain slowdown rather than demand deceleration."
Yun said he sees a sellers market developing.SEE ALSO: The 10 American Housing Markets That Made Tremendous Turnarounds In 2012 >
More From Business Insider