NEW YORK (MainStreet) — Housing starts are up, property prices are rising and millions of homeowners are no longer "underwater" — so why is America facing a big shortage in the number of residences available for sale?

"We should be seeing the supply of available homes growing more rapidly, but it isn't," says economist Jonathan Smoke of Realtor.com.

The National Association of Realtors recently reported that while median home prices jumped 7.8% in March, America had just a 4.6-month supply of properties on the market. That's well below the six- to seven-month supply experts consider normal.

Inventories of available homes have been low for years because the housing bust dried up construction and left many homeowners "underwater." That's where you owe more on your mortgage than your property is worth, meaning you can't easily sell unless you have enough cash to make up the difference.

Economists say the housing market's slow rebound over the past few years has begun to chip away at both problems, but that shortages remain.

"Supply is tight virtually everywhere in the country," Smoke says. "It's really started to emerge as one of the most important factors that's holding back the market."

He and other experts say problems persist because:

Construction levels are still low
U.S. housing starts rose 12.4% over the past year to hit a 1.04 million annual rate as of the first quarter, but Smoke says that's way below what he'd expect at this point in the housing-market cycle.

The economist says developers are breaking ground on plenty of multifamily units to take advantage of high apartment rents, but aren't building enough houses.

While contractors started work on houses at a 680,000-unit annual rate during the first quarter, Smoke says that's about 400,000 too few.

He attributes the shortfall to a reluctance by developers and lenders to do "speculative" construction, which involves building homes and selling them later instead of starting work only after you've signed buyers up.

Underwater homeownership is still high
Market watcher RealtyTrac recently reported that as of March 31, America had 7.2 million "seriously underwater" homes, or properties worth at least 25% less than their owners' current mortgage balances.

That's down from 12.5 million such homes three years ago, but still means plenty of property owners are unable to sell even if they wanted to.

"These homeowners won't put their places on the market because they'd lose money selling them," says Ralph McLaughlin, an economist with home-buying site Trulia.com.

"Above-water" homeowners often can't move
Smoke believes even property owners who aren't underwater are often staying put because today's inventory shortages are hurting their home searches as much as everyone else's.

"It's a chicken-and-egg kind of problem," he says.

Tighter lending standards put in place after the bust also mean homeowners who got mortgages long ago on their current properties can't necessarily qualify for loans now. Smoke says that while the typical American has a 711 FICO score, borrowers need a 732 rating on average these days to get home loans.

What the market needs
Trulia's McLaughlin thinks rising home prices will eventually reverse today's shortages by pulling more troubled homeowners "above water" and sparking additional speculative construction.

But he doesn't see the problem going away any time soon. "We don't expect things to change drastically in months or quarters," McLaughlin says. "We're probably looking at years."

In the meantime, he and Smoke say would-be buyers should get used to higher home prices, tight supplies and bidding wars for desirable properties.

They also say house-hunters need to move fast when making offers, so the economists recommend getting pre-approved for mortgages and putting together all financial documentation needed to finalize a loan.

"You have to have all of your ducks in a row," McLaughlin says. "Home buyers — especially first-time ones — really need to have their act together."

— Written by Jerry Kronenberg for MainStreet