Housing market recovery facing major hurdles

In response, home builders are urging institutions and regulators to ease tight credit conditions to help boost production to meet increasing demand and, in turn, spur job growth and boost the economy. 

Moreover, policymakers and appraisers also need to find fixes to the flawed appraisal process to restore confidence and, at least, slow the number of canceled sales. 

Last week, NAHB unveiled a white paper designed to get all stakeholders to come together with a set of reforms for appraisal practices and oversight to ensure that appraisals accurately reflect true market values.

Appraisal systems vary widely from state to state. 

Policymakers need to begin tackling these changes with the peak spring home building season just weeks away and inventories of new homes at or near record-lows in many markets.

David Crowe, NAHB's chief economist, said the supply chain is starting to strain because many building material manufacturers, such as drywall producers and lumber firms, had to close plants and cut back production dramatically or close during the downturn. 

"Producers are reluctant to expand while credit remains tight and the most recent result has been skyrocketing prices," he said.

Meanwhile, creditworthy borrowers can't obtain mortgages and rising building material prices and labor shortages in some areas are pushing up costs and slowing completion times.

In a separate report on Wednesday, the National Association of Realtors (NAR) said rock-bottom inventory could put a crimp in overall sales this year. In fact, NAR has slightly lowered its expectations for sales this year because of the situation. 

Still, that shortage has helped pushed up prices, helping current home values for current owners and pressing potential buyers to get into the market before prices get much higher.