While smaller builders are taking the brunt of the price increases, the big public builders may actually be taking advantage of them. Knowing that supplies are low and demand is high, some are limiting sales in order to keep prices high.
(Read More: Housing "Stuck" Due to Short Supply)
"We are pricing our homes and limiting the number of lots we're releasing for sale in some communities to better manage our order volumes relative to our production capacity, and to maximize our profit from those communities," wrote Meritage CEO Steven J. Hilton in the company's quarterly earnings release.
Meritage is not the only one, as limited supply of new and existing homes pushes prices higher across the nation. It may seem counterintuitive to stop building in such a scenario, but apparently it is making business sense.
(Read More: Housing Recovery to Face Test as Builders Report)
"Many builders are starting to limit production," noted Megan McGrath of MKM Partners. "I think raising prices is one part of the equation, but I also think there is the issue of limited labor and finished lots at play."
With the housing crash so deep and prolonged, the big builders may have been caught off guard by the swiftness of new housing demand. Few predicting the inventory shortfall, and it is still unclear how long that shortfall will last. Builders are in the business of selling homes, but they also need to be in the business of staying in business and delivering to shareholders. If slower production amid rising demand equals higher prices, then that may just be the new normal.
—By CNBC's Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC
Questions? Comments? RealtyCheck@cnbc.com
We know there is still a huge supply of bank owned (REO) properties, and we also know that banks are pushing short sales on many more properties than ever before. But they are also pushing REO sales, thanks to new sales incentives from lenders and the GSE's (Government-Sponsored Enterprises). "Realtors and mortgage loan officers nationwide are driving mid-to-high end organic, short and distressed sales on the fear that buyers will be unable to qualify for loans once the QRM (Qualified Residential Mortgage) rules are in place requiring 20 percent down," says mortgage market analyst Mark Hanson, describing new rules being considered for risk retention by banks (part of the banking overhaul legislation passed last summer). Some bloggers though, writing in to me after the existing home sales report, claimed that Fannie and Freddie are holding on to REOs, trying to game home prices. Fannie strongly disputes that. "Fannie Mae doesn't have a shadow inventory of REO properties that are available to be sold. As soon as we acquire a property, we quickly identify a market competitive price, determine whether to make any necessary repairs and list the property. In the first three months of 2011, we sold a record number of REO properties, selling more properties than we acquired," said Amy Bonitatibus, Fannie Mae spokeswoman. "We watch taxpayer dollars like it's our own money. We have an immense responsibility to get the most possible value from each REO property we sell. We are committed to stabilizing neighborhoods and preserving communities across the country," she added. In fact, Fannie Mae recently launched another program of financial incentives to Realtors to sell REO properties. A note from analysts at Goldman Sachs, titled Foreclosure Sales: Federally Backed Lenders Shifting to Net Sellers, states: