It's the classic story of which comes first… the chicken or the egg? Inventory is short because there aren't enough homes listed for sale, and some sellers are holding back listing their homes for fear of not finding something to buy… and so the cycle perpetuates itself.
The chief economist for Realtor.com lamented that "the increase in sales is resulting in continued tighter-than-tight supply – measured by NAR to be four months in January." If he thought that was "cray-cray", I wonder what he would call our market… we have had only about a two month supply for the last three months! (normal is 5-6 months)
This has locked some sellers in place if they don't know where they are moving once they sell. For those who can afford it, more sellers are buying first then listing their current home for sale after they sell their current one.
But the supply does vary by price. Price ranges below $250,000 are mostly 1.5 months and below!!! The $250k-$350k price range increases to 2.2 months and $350k-$500k to 3.7 months. Only the $500k-$1M range is considered balanced, at 6.6 months. Price ranges over $1M have about a 16-month supply… but that range always has a higher supply because there is a smaller buyer pool.