California has less than four months of housing inventories

The California Association of Realtors sales report puts inventories at 3.8 months. Perhaps more interesting is that even inventories in the $1 million + range are half what they were a year ago, and at 7.8 months are just slightly higher than the equilibrium level of 5-6 months.

The market is now tight enough that it could even handle some foreclosures (the shadow inventory) without getting whacked too badly. And because lenders seem more willing to do short sales, there is a chance that the number of foreclosures will be somewhat smaller than previously forecast.