Lower mortgage rates should have given home sales a boost in January, but they did not. Sales of existing homes fell 1.2 percent to their lowest level in more than three years compared with December and were a wider 8.5 percent lower annually, according to the National Association of Realtors.

That could be good news for buyers seeking relative bargains in the spring.

Real estate agents and analysts have long been blaming weak sales on too few listings and rising rates — but supply has been rising steadily for several months and rates have been falling. Total housing inventory at the end of January increased to 1.59 million, up from 1.53 million homes for sale in December. Supply is also up from 1.52 million a year ago.

Home prices are still higher compared with a year ago. The median price of an existing home sold in January was $247,500. But that is just 2.8 percent higher compared with January 2018, the smallest annual gain since February 2012.

"Existing home sales in January were weak compared to historical norms; however, they are likely to have reached a cyclical low," said Lawrence Yun, chief economist at the NAR. "Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months."

But here's the rub: The supply of affordable homes for sale is not increasing quickly enough. That is why sales of homes priced below $100,000 were nearly 15 percent lower compared with a year ago, while sales of homes priced above $750,000 were just 2 percent lower.

Homebuilders are still not ramping up production enough to meet demand, especially in the entry-level market. Sales of newly built homes, which come at a price premium to existing homes, were weak for much of last year.

Builders are starting to see more traffic through models, as they lower some prices and offer more concessions. But they are still finding it hard to build cheaper homes.

"Rising costs stemming from excessive regulations, a dearth of buildable lots, a persistent labor shortage and tariffs on lumber and other key building materials continue to make it increasingly difficult to produce housing at affordable price points," said Robert Dietz, chief economist at the National Association of Home Builders.

Builder sentiment rose in February overall, as buyer traffic and sales expectations for the next six months saw significant gains, according to the NAHB. Lower mortgage rates also helped sentiment.

After spiking in September, mortgage rates began falling in November and dropped even more sharply in December. They are now at the lowest rate in a year.

Most analysts think the recent decline in mortgage interest rates will bring more buyers back to the market. But home prices are still high, due to the sharp run-up after the recession.

That has kept some first-time buyers sidelined. They represented just 29 percent of existing home sales in January, compared with 32 percent in December. Historically, first-time buyers represent about 40 percent of home sales.

"If mortgage rates stay close to these new lower levels, then the hit to affordability from rising rates will be reduced – and the positive impacts of the job market and demographics should flow through to stronger housing demand," said David Berson, chief economist at Nationwide.

Lower mortgage rates, combined with slower home price appreciation, are bringing the housing market out of its recent overheating and into a more moderate environment with respect to the rest of the economy.

"Wages are growing on par with home prices for the first time in years, and with more inventory available, spring home sales should help the market begin to recover from the malaise of the last few months," said Sam Khater, chief economist at Freddie Mac.