It’s normal at this time year, just weeks before the spring home buying season kicks off in most part of the country, for inventories of homes for sale to sink to yearly lows. Expectations are that sellers are busy staging and buffing, with an eye towards listing their homes just as the first robin sings.

But there’s nothing normal about the latest inventory readings across the nation. We’re seeing decade-low lows, not just year-long lows and there’s no hint of an uptick.

Here’s the freshest data. The Department of Numbers reports that through February 20, the inventory of homes for sale has decreased by 20.2 percent since this time last year. Realtor.com reports its January inventory of listings was down 23.2 percent year over year and down 6.59 percent from December. Altos Research’s 20-city composite was down 14.46 percent in January from January 2011 and down 3.87 percent month over month. Those are the lowest inventory readings in years.

The top five markets leading the inventory decline tracked by Realtor.com in January were Iowa City (-3l.01 percent year over year), San Francisco (-27.39 percent), Anchorage (-25.49 percent), Rochester (15.35 percent) and Spokane (-15.22 percent).

Usually low inventories translate into higher prices, which would be welcome in many quarters. However, two weeks ago Jonathan Miller of Miller Samuel Inc. questioned whether the trend was a good thing. “The drop in inventory as a phenomenon may or may not pass quickly but one thing is clear – weird changes in market behavior happen for a reason – I don’t see declining inventory as a particular sign of strength in the housing market.”

Miller argued the drop resulted from a waning in seller confidence, low interest rates extended by the Fed for the next two years that have removed any sense of urgency and an artificially created, temporary lull in foreclosures .

“Declining foreclosure volume is one of the key reason inventory levels are dropping. The one-third decline in foreclosure volume in 2011 has resulted in a sharp drop in foreclosure inventory resulting in a sharp drop in total inventory. Distressed sales have been running at about 30 percent of total sales nationally for a few years but fell to about 20 percent in 2011. With a 2 million more homes expected to go into foreclosure over the next 2 years, a year-long internal review of procedure after the 2010 “robo-signing” scandal and the 50 State AG settlement with the largest services/banks, distressed inventory is expected to rise sharply over the next several years,” Miller wrote.

Even before the agreement was finalized, REO sales as a percentage of total home sales were rising, up from 24.8 percent at the end of 2011 to 25.4 percent at the end of January. How quickly the 1.6 million properties in the pipeline will depend upon the establishment of new standards in the wake of the agreement and the speed by which services can process them. Judicial states, where the backlogs are greatest, will take the longest.

As REO inventories rise, “fair” price inventories will remain far below normal levels for this time of the year, even if prices rise slightly. When prices plunged in 2007, sellers who had the flexibility to do so withdrew from the market to await better times, creating a “pending supply” of inventory that would be unleashed on local markets in response to rising prices. Five years later it seems that the “pending supply” has diminished. Even should prices rise in response to the low supply and improving economy, not as many sellers say they will respond as three or four years ago , according to surveys by Move, Inc. Based on the survey, today 32 percent fewer of homeowners would be motivated to sell because of a 20 percent increase in prices than in March 2010. Why? Many could not wait for the recovery. Others put their homes on the market in 2010 to take advantage of the price increases resulting from the tax credit.

Negative equity is another important factor keeping homes off the market. About one out of four homeowners with a mortgage is still underwater and frozen in place. Only time, improving values and efforts like the latest HAMP 2.0 refinancing initiative will improve their plight.

“Weak seller confidence is causing property not to be released into the market unless the need to sell is not optional. The 2011 home seller and buyer was bashed with the debt ceiling debate, the S&P downgrade of US debt, 400 point daily swings in the financial markets, the European debt crisis, the AG/Service settlement drama and the political stalemate on housing policy in Washington. What do people do when faced with the unknown? They sit and wait. Buyers had a lot more incentive to act with falling mortgage rates to record levels but mortgage underwriting grew tighter over the year as well,” argued Miller.

With buyers and sellers sitting on their hands, the coming months will be an ideal time for investors to select from a growing pool of REOS and pick up properties at prices they may never see again.