Last week, The National Association of Realtors said existing home sales were up just 0.4% with inventories being reported as the reason for a lower than expected reading. In fact, inventories across the U.S. fell 4.9%, or 25% year-on-year, to 1.74 million, which was the lowest since Dec. 1999.

It seems that those lower inventories, low interest rates and hungry buyers helped push prices higher as well. Earlier this morning, the S&P/Case-Shiller 20-city composite index posted a 0.2% increase in December, following a 0.1% decline in November. After seasonal adjustment, home prices rose 0.9% in December. December’s prices were up 6.8% from the same period in 2011, with increases in 19 of 20 cities. This reading caps the best calendar year gain since the 15.5% surge in 2005.

New home sales figures just released from the Commerce Department showed that units sold leapt 15.6% in January to an annual rate of 437,000 to mark the highest month of activity since July 2008 (seasonally adjusted). Sales in January topped economists’ estimates for 384,000 in annualized sales. December sales were revised up to 378,000 from an initial read of 369,000.

The West (The California & Arizona effect) saw the greatest increase over the same period last year, up 45.3%, and Northeastern states also saw a substantial increase of 27.6%. Northeastern sales may have gotten an early jolt from unseasonably warm winter weather that persisted from December into early January. New home sales on average are roughly 29% higher compared to one year ago.

The supply of new home inventory fell to 4.1 months at the current sales rate from 4.8 months in December, the lowest level since 2005.

Contrasting the S&P Case Shiller reading, the median price of new homes fell more than 9% to $226,400 in January from $249,800.

What strikes me as odd is the fact that housing starts (reported last Wednesday) fell 8.5% to an annual rate of 890,000 in January with building permits up 1.8% to 925,000. The important single-family starts rose just 0.8% to 613,000, which is slightly above the 600,000 threshold that reflects a neutral housing recovery.

The week prior, the National Association of Home Builders Housing Market Index (:HMI) slipped to 46 from 47 in February, continuing below the neutral reading of 50. Uncertainty about the job market, home buyer access the mortgage credit, rising costs for building materials, limited availability of labor and desired lot locations were all reasons cited.

Here is where I get a bit confused…

If prices are so strong and inventory so low, why aren’t we seeing more homes being built? Why are quality home builders like Toll Brothers warning investors about upcoming earnings?