The brief summary can be contained here in this post. If you want a more detailed summary, you can download the PDF report.
The inventory dropped for a number of factors. The number of sales increased by 17% in volume, while the banks still have shadow inventory, albeit, not as much as before. Banks have not put up for sale as many houses as they have in the past. Also, it takes a while before the seller's perception of the market catches up to the reality of the market. This is called "lag time." This means that sellers have not realized the amount of improvement and consequently have not put their homes on the market as much as they should have. These factors all contribute to the lack of inventory.
Buyers have stepped up to the plate driving sales higher. There is a combination of factors that are increasingly enticing buyers to purchase homes. The first factor is that prices are still fairly low. Next up is that the mortgage rate is also still low, near record lows at under 4% in some cases. The last factor is that consumer confidence is up, which is leading buyers to be ok with large purchases such as houses.
This has pushed the sales to be stronger than 2011 by a significant margin. The number of homes sold in 2012 was up 17%, to a total of 48,641 units sold. That's a huge increase. With that many more sales going on, one would expect a price increase as well.
Prices were up 12% over 2011. But part of this price increase is due to the lower number of foreclosures and distressed properties on the market. In 2011, we had a whopping 50% of the homes sold being distressed, and in 2012, that number dropped to 40%. So part of the 12% increase over 2011 is due to removing 10% of the bottom, lower-priced houses, namely foreclosures and short sales. Also, due to the standard "Supply and Demand" ratios, lower inventory will yield higher prices.
As you can see, the strong demand for houses and the lack of inventory has pushed prices up. You can download the entire report by clicking on the image.