Sales of newly built homes in February beat the Street's expectations by a bundle. Analysts had projected a 4 percent drop from January and instead saw an 8 percent jump. The sales pace is the highest in seven years and is a full 25 percent higher than a year ago.
There is, however, a big backstory.
The "annualized sales pace" hit 539,000—which means that is the estimated number of homes that would sell in all of 2015, based on the pace in February. Again, it is the highest clip in seven years, but back then housing had just undergone an epic crash, from a 1.4 million annualized pace in July 2005 to a bottom of 270,000 in February 2011, according to the U.S. Census Bureau.
If you take the numbers back to 2000, before the housing boom, sales were at an 880,000 annualized pace, still higher than today, and the U.S. population has grown more than 11 percent since then.
So here's the rub: The supply of existing homes for sale is also lower today than it was in 2000, again, with that population growth, so builders' sales are likely getting a boost simply because there are so few homes altogether on the market.
"Bottom line, with Realtors complaining about the lack of product (as stated in Monday's existing home sales release), homebuilders responded with more new home sales," noted Peter Boockvar, chief market analyst at The Lindsey Group. "There is plenty of runway for more building."
While the sales numbers in February showed nice percentage gains, the housing market still desperately needs more construction. Housing starts are running at about half of where they should be, given the demand. Smaller builders, really the meat of the market, are hamstrung by a lack of construction loans, and larger, public builders are pushing higher-end homes because that's where they see demand and a higher profit margin.
Read MoreWhy housing has a supply problem
While the price gains for new construction in February were the smallest in six months, the premium for new construction is still higher than it has been historically. With so little supply, prices will continue to gain, and that is not what today's buyers want to see, especially first-time buyers.