As housing supply continues to stay tight and home sales pick up, prices continue to rise.

There were 2.1 million homes on the market for sale in January, down 24 percent from a year ago. And though new and existing homes entering the market are up, the sales pace increased as well.

In a new report, Paul Diggle from Capital Economics writes that "ultra-low mortgage interest rates and steady, if not spectacular, job creation mean that the delinquency rate and foreclosure start rate are falling quickly."

He says this is causing the composition of inventory to shift, and points out that more homes are coming into the market as pre-foreclosure (short) sales.

This has caused the discount on foreclosed homes versus other homes to decline to an average of 12 percent, a level last seen before the housing crash.