"Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels," said Lawrence Yun, chief economist for the National Association of Realtors in a release. "Most local home builders are small businesses and simply don't have access to capital on Wall Street. Clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market."
Sales of newly built homes fell nearly five percent in February, according to the U.S. Department of Commerce. Inventories did rise, but only slightly, as the nation's home builders struggle with labor and land shortages, as well as higher costs for materials.
(Read More: Finally: Supply of Homes for Sale Begins to Rise)
Pending home sales fell 2.5 percent month-to-month in the Northeast, rose 0.4 percent in the Midwest, fell 0.3 percent in the South and rose 0.1 percent in the West, according to the Realtors.
"The volume of home sales appears to be leveling off with the constrained inventory conditions, and the leveling of the index means little change is likely in the pace of sales over the next couple months," Yun added.
(Read More: Map: Tracking the USReal Estate Recovery)
A better sign for March, after two weeks of declines, mortgage applications to purchase a home jumped 7 percent during the past week, according to the Mortgage Bankers Association. This as interest rates fell slightly, due to concerns over the banking crisis in Cyprus.
"The rebound in mortgage applications is a small piece of a brighter housing outlook," says Bob Walters, chief economist for Quicken Loans. "Interest rates are still at record lows despite their upward trend, and consumers are taking advantage of record home affordability. Look for more buyers to enter the market this spring and a more robust housing recovery to occur."
(Read More: Compare Mortgage Rates in Your Area)