The housing market is rising in large part because buyers are bidding up a limited supply of homes.
The housing market is rising in large part because buyers are bidding up a limited supply of homes. - 
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Home prices in the U.S. have risen consistently for the last three years. By that measure, the housing market looks pretty good, but the prices are being driven by a severe lack of supply. And that’s discouraging for many buyers, especially in some of the hottest markets, like Denver.

Take the case of new mom Robin Smith. Her apartment in Denver was too small for her growing family. So Smith and her husband went looking for a house. They found one in the suburbs they really liked, a four-bedroom place listed for $259,000.

“We made an offer $10,000 over the asking price,” says Smith as she bounces her baby on her lap. “There were 32 offers on the home over a weekend.”

In the end, her $10,000 over asking price wasn’t even close. It sold for $282,000.

Smith and her husband both work for national companies, which makes relocating easier. So they considered something a little radical: They decided to expand their housing search to Texas.

“Someone recommended Austin and said it was a little more affordable and still a great place to live," Smith recalls. "So we actually booked a flight the following week and bought a house.”

The median price for a single family home in Austin is about $50,000 cheaper than in Denver. But many people don’t have the luxury of moving to a more affordable area.

The problem from Seattle to Dallas to Denver is that buyers are bidding up a very limited supply of homes.

“Prices are rising just too fast,” says Lawrence Yun, chief economist with the National Association of Realtors. “And certainly far ahead of people’s income.”

The supply shortage is a problem for all types of housing for sale. Condos account for just 5.5 percent of all multifamily building in the first quarter of 2015 — that’s the lowest level since the Commerce Department began keeping track of that 41 years ago.

Meanwhile, single family home construction is half of what it should be, according to Bob Denk with the National Association of Home Builders. Denk says changing that would require a seismic shift in the industry. That’s because skilled labor and lots to build on are in short supply.

“And we are having these supply chain headwinds,” Denk says. “It’s hard to just double overnight. But the other part of that is we have produced at this level before, so it’s not impossible.”

Not impossible, but probably not changing anytime soon. Which means home prices will likely keep going up.