The price of anything in a free market is determined by supply and demand. More demand relative to supply, and prices go up. More supply, they go down.

So what does it say about our housing market when both supply and prices fell in 2011?

NAR reported that the median price for existing home sales in December was down 2.5% year-over-year.

At the same time, the the supply of homes for sale is rapidly contracting. From Calculated Risk.

Read More: http://bayarearealestatetrends.com/2012/01/20/what-would-have-happened-if-housing-inventory-wasnt-down-so-much/