Tight lending conditions, a shrinking number of distressed homes for sale, and millions of owners with little or no equity in their homes are holding down the supply of homes for sale.

LAFAYETTE, Calif. — Signs of spring abound on a tree-lined street here in the San Francisco Bay Area.

Daffodils have sprouted. New plants have been potted. But one harbinger of spring is missing. There are no “For Sale” signs on this street of 116 homes.

The lack of home sellers on Moraga Boulevard as the spring selling season nears is of little surprise.

Nationwide, the supply of existing homes for sale has fallen for seven straight months, hitting an almost eight-year low in January, the National Association of Realtors says.

Competing offers for the same homes are rising in more markets, especially in the West.

Much of the country is now a seller’s market, the Realtors group says, just one year into a potential housing recovery following the worst downturn since the Great Depression.

The shortage of sellers, a force behind higher prices, is expected to ease as prices rise, economists say.

But a return to healthy inventory levels could take years. Many homeowners can’t afford to sell because they don’t have enough equity to put into buying another house — or would have to write a check to sell. The supply of distressed houses for sale is thinning as the foreclosure crisis recedes, especially in some states. Home building, while improving, is still at low levels. And, after years of holding on, few homeowners want to sell when prices are just coming off the bottom, Realtors say.

“We’re making a painful transition from a market dominated by distressed sellers to a market in which the only people selling are people who want to sell,” says Glenn Kelman, CEO of online brokerage Redfin.

The nation now has a 4.2-month supply of existing homes for sale. A healthy market, defined as a six-month to seven-month supply, will arrive when home prices rise another 20%, estimates John Burns, CEO of John Burns Real Estate Consulting.

A jump that size will lure enough sellers to match demand pouring in from renters and investors, he says. Rising prices will also drive more home building, he says.

Home prices are already up more than many expected this time last year. The Standard Poor’s Case-Shiller index shows them up 7.3% in the fourth quarter of last year vs. a year earlier, SP said Tuesday.

Rising prices spurred expectations that more sellers would appear. But listing data for 2013 show no such turnaround.

In January, homes listed for sale were down almost 17% year-over-year in 146 major markets, show data from Realtor.com.

Two dozen markets saw drops in excess of 25%, including many in California but also Seattle, Atlanta, Minneapolis and Washington, D.C. All have a smaller supply of homes for sale than the national average of 4.2 months.

That number, from the Realtors association, means if no more homes came on the market, they would all sell in 4.2 months.

Listings picked up in late January and early February but “not enough to meet demand,” says Rick Turley, president of Coldwell Banker Residential Brokerage for the San Francisco Bay Area. In some super competitive Silicon Valley markets, the supply of homes is down to a week, he says.

“Buyers and agents are literally waiting for the next house,” he says.

Brad and Annie Sarsfield, of Seattle, joined the ranks of sellers in January. They sold a townhouse and a condo and are buying a single-family home.

The couple are expecting their second child in April and wanted a bigger home. To pull that off, they had to forgo living in Seattle and move to a suburb 25 minutes away.

That’s because the supply of homes for sale in parts of the Seattle region are running at less than two months, the Northwest Multiple Listing Service says.

If a home came on the market in the city that the Sarsfields liked, “It was gone in a weekend,” says Brad Sarsfield, 35, a software engineer.

On the other hand, the couple had buyers for their condo and townhouse within a week of listing them, Sarsfield says.

“It’s a great time to be a seller,” he adds.

So why aren’t there more of them?

The O.W.E. Club: Owners Without Equity

Many homeowners are still equity poor, economists and Realtors say.

Nationwide, almost 28% of homeowners with a home loan owe more on their loan than their home is worth, data from market watcher Zillow show. That’s 13.8 million homeowners. They’d likely have to write a check to sell, especially if they have to pay a Realtor.

In some areas where home supplies are especially tight, even more mortgaged homeowners are underwater. In Las Vegas and Atlanta, it’s one of two. In Sacramento and Phoenix, it’s four of 10, Zillow data show.

An even bigger chunk of mortgaged homeowners — 45% — have less than 20% equity. That much is generally needed to sell, pay a Realtor commission and still have a hefty down payment to get the most attractive loan terms to buy again.

“They are stuck. They are zombies,” says Mark Hanson, a California-based adviser to professional investors on housing and mortgage issues.

Then again, some homeowners may be surprised to know they can sell.

A year ago, Atlanta prices were still falling. Now, they’re surging. The median home price in Atlanta in January was up 43% year-over-year, the Atlanta Board of Realtors says. In the previous year, it was down 17%.

“In most areas of Atlanta, people would be shocked as to what their homes are now worth,” says Mike Prewett, president of Southern REO Associates.

The market turned so fast, “people haven’t caught up,” he says.

SP data show Atlanta home prices up 9.9% in December year-over-year, its biggest annual jump in at least 20 years. SP data are less affected by the types of homes that sell vs. median prices.

Other homeowners are waiting for prices to go even higher.

With prices rising, “There’s no rush to sell,” says Realtor Michele Schuler, with Coldwell Banker Bain near Seattle. “At the same time, there’s a lot of fear. If they sell, will they find another place to live?”

Tighter mortgage loan standards have also made buying and selling harder to pull off. For instance, lenders used to often extend lines of credit against existing homes so move-up buyers could raise down payments to buy. They’re far less likely to do that now, says Karen Mayfield, national mortgage sales manager for the Bank of the West. Income qualifications are also tougher.

In competitive markets, that means owners may have to sell, then rent while looking for another house to buy. For families with kids and pets, that’s a daunting prospect. “Many people are frantic about not being able to find temporary housing,” Mayfield says.

Dynnel Ryan would love to sell, but not at today’s prices.

She and her husband, Zack, bought a home in Lafayette in 2004, shortly before the market peaked.

With three kids under age 5, “the walls close in” because the 1,900-square-footer feels too small, says Dynnel, a part-time photographer.

Despite last year’s price gains, she says the couple would still lose money if they sold. They paid $639,000 for the house and put another $200,000 into it.

“I want to at least break even,” she says.

Fewer distressed properties are also hurting supplies.

In 23 markets tracked by online brokerage Redfin, including 12 in the West, 46% fewer bank-owned listings were added in the first six weeks of this year vs. the same time last year.

Bank-owned listings — distressed properties taken over by lenders, often through foreclosure — had been trending downward for the better part of a year, Kelman says. The bigger change was in 54% fewer short sales, which banks gravitated to last year as an alternative to foreclosure. A short sale occurs with a lender’s approval when a distressed home is sold for less than the mortgage balance.

The supply of existing homes for sale peaked in July 2010, with a 12.1-month supply, NAR says.

“Distressed sales are drying up,” says Valerie Huffman, manager of a Weichert Realtors office near Washington, D.C.

An urge to stay put

Moraga Boulevard offers other clues as to the dearth of home sellers.

The street is popular because of its proximity to downtown and local schools. It’s favored by young families, who often move up and out as families and budgets expand. Downsizers leaving bigger homes like the street, too.

More than half of the boulevard’s homeowners have more than 20% equity in their homes or own them outright, according to ForeclosureRadar, which tracks real estate markets in five Western states.

Before prices started to tank here, four to six homes on the street turned over every year, based on data from real estate website Trulia.

“There’s a different mentality now,” says Clark Thompson, broker with local real estate firm Village Associates. “More people are saying, ‘I’m perfectly content to stay.'”

On a recent Sunday, he was visiting friends Alex and Carrie Cox. They bought on the street in 2007. With two children now 7 and 9, the couple added on to their home two years ago.

Both of them work in computer-related sales and could buy up if they wanted. “We’d rather save our money and retire,” says Carrie Cox, 39.

Rosie and Michael Marchiano, too, watched Moraga Boulevard neighbors move up and out. They stayed, even though the 1,915-square-foot house, which seemed just right when their kids were little, is a bit cramped with teenagers.

At the peak of the market, their home was worth an estimated $1.2 million, up almost 50% from what they paid for it in 2002, estimates Rosie Marchiano, 52. It’s probably fallen back to about $900,000, she says.

“I’ve seen friends lose jobs, and it’s made me pause,” Marchiano says. “If I was tempted in the past by going into other people’s bigger homes, I’m not tempted anymore.”