There is no supply shortage. The banks are holding millions of foreclosed homes off inventory to be able to pass stress tests. Low inventory is a BS canard.
Many, and in some areas most, of these houses will need to either be completely gutted or demolished. This is especially true in areas of high humidity and even more true when the banks didn't have the houses completely cleaned after the foreclosure.
While what you say is totally true there does appear to be a big shortage of available homes on the market. Our Zillow estimate for our house is up $30,000 in about 9 mos. We are actually going to walk away with some money in our hand. Who knew? :-)