Buyers are trolling the nation's neighborhoods looking for homes at the fastest pace in nearly two years, making an already critical shortage of inventory even worse.
Sales of existing homes rose a steeper-than-expected 3.5% in December compared with January, according to the National Association of Realtors.
Demand is surging because mortgage rates are about a full percentage point lower than they were a year ago, and the largest generation, millennials, are aging into their homebuying years.
That demand has pushed the supply of homes for sale down 8.5% annually to the lowest level since the Realtors began tracking inventory in 1982.
At the current sales pace, the total supply would sell out in just three months. A six months' supply is considered a balanced market.
The huge imbalance between supply and demand caused the median home price in December to jump 7.8% annually, the biggest annual increase in almost four years. Prices were up just 5.4% annually in November. The inventory shortfall is worst at the lowest end of the market, and, as a result, that is where prices are surging most.
"It will reach a choking point," said Lawrence Yun, chief economist for the Realtors, suggesting that higher prices will soon sideline a growing number of buyers.
Sales of homes priced below $100,000 were down 7.7% annually in December, while every other price category saw increased sales. That is because there is so few for sale at the entry level. Investors have been very active in this category, turning these homes into lucrative rentals.
"Investors continue to lift the pace of their buying as they search for yield (thank the Fed for pricing out natural buyers, especially young, first-time buyers), totaling 17% of purchases vs 16% in November, 14% in October and 13% one year ago," noted Peter Boockvar, chief investment officer at Bleakley Advisory Group.
If prices also continue to surge in higher-priced categories, those sales could fall off as well.
"There is so much frustration out there because would-be homebuyers are motivated, but they're thwarted by shortages," said Holden Lewis, home and mortgage expert at NerdWallet. "Fewer homes are on the market, but sales are rising, which means that buyers already face competition from other buyers long before the beginning of the traditional homebuying season."