The number of houses and condominiums available for sale at the end of November plunged 58.5 percent to 1,150 properties from 2,777 a year ago, according to a report from the Van Nuys-based Southland Regional Association of Realtors.
That is a just a 1.5 month supply at the current sales pace. A five-to six-month supply is considered a balanced market in which neither buyer or seller holds the upper hand.
Nevertheless, sales of previously owned houses increased 9 percent to 558 from 511 a year earlier. Sales declined 12 percent from 635 transactions in October.
And the median house price rose 12 percent to $399,000 from $355,000 in November 2011 and increased 5 percent from $380,000 in October.
"Even with tight inventory the market looks optimistic, assuming the government gets its act together and doesn't do anything to curtail activity," Jim Link, the association's CEO, said in a statement.
"Absent government tinkering or inaction, 2013 will see an even stronger home resale market."
Condominium sales fell 2 percent to 186 units from 190 a year ago and dropped 9 percent from 204 in October.
The median condo price increased 9 percent to $244,900 from $225,000 a year ago and rose 4 percent from $235,000 in October.
The supply of houses for sale dropped 56 percent over the past 12 months while condominium listings plunged by 66 percent, the association said.
Association President Wendy Silver-Hale said the tight inventory is the only thing holding back sales. And it is resulting in bidding wars in many instances.
"It's a recovery market that wants to take off," she said. "What's also positive is equity sales have rebounded. And the number of multiple offers is astounding."
Last month standard, or equity sales, accounted for 63.5 percent of the market while foreclosures totaled 11.2 percent and short sales 19.2 percent.
It suggests a market that is rebalancing toward normal.
Silver-Hale thinks that equity sales will continue to rise as owners who have been sitting on the fence waiting for the market to improve will realize that it is already happening.
"Oh my God, I hope it's by springtime. That's the height of our market," she said of when an uptick in supply might materialize.
The inventory shortage is also impacting the Santa Clarita Valley market, the association said.
Listings there plunged 68 percent to 332 properties in November from 1,039 a year ago, equal to a 1.4 month supply.
Home sales in November fell 16 percent to 167 from 198 a year earlier and fell 23 percent from 217 in October. The median house price increased 6 percent to $369,000 from $340,000 a year ago and was unchanged from October.
The condominium market did better. Sales increased 20 percent to 78 units from 65 a year ago and fell 6 percent from 83 in October. The median condominium price fell 1.5 percent to $197,000 from $199,900 a year ago and from $200,000 in October.