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Decline in Sales of Previously Owned Homes

Sales of previously owned homes fell unexpectedly again in May, making it the second consecutive down month as a lack of inventory and elevated asking prices weighed on demand.

According to the National Association of Realtors (NAR) contract closings declined 0.4 percent month over month to 5.43 million annual rate, from a revised 5.45 million (previously 5.46 million). The median sales price increased 4.9 percent year over year to a record $264,800. At the same time, the inventory of available properties fell 6.1 percent year over year to 1.85 million.

Leading the decline was purchases of single-family homes and cheaper properties, according to NAR, indicating that the market is being driven by those with higher income and financial assets. Purchases fell in three of four regions.

NAR indicated it remains concerned about a limited supply of available properties that has pushed up housing prices, leaving buyers with fewer options.

In May, homes were on the market for an average 26 days, matching last month as the fewest days in records to 2008, the group said.

Sales of lower-cost homes were down from a year ago, while homes priced $250,000 or more were up. Government data on Tuesday indicated the fastest pace of housing starts in more than a decade, even though a decline in applications to build suggested some moderation in building in coming months.

While lower taxes are raising disposable income, higher mortgage rates and slow wage growth remain hurdles for first-time homebuyers.

Existing home sales account for about 90 percent of the residential real estate market and are calculated when purchase closes. New-home sales figures, due Monday from the government, are projected to increase slightly. These numbers are tabulated when contracts get signed, making them a timelier indicator despite their smaller market share.

“Affordability challenges are hurting first-time buyers,” Lawrence Yun, NAR’s chief economist, said at a press briefing accompanying the report. Higher prices are “terrific news for homeowners, but not all Americans are owners. They’re feeling left out by the constant outpacing of home-price growth over wage growth. The housing affordability issue is becoming a crisis,” he said.

Purchases fell in three of four regions, led by a 2.3 percent decrease in the Midwest and a 0.8 percent drop in the West. At the latest selling pace, supply would last 4.1 months, compared to 4 months in April; Realtors group considers less than a five months’ supply as consistent with a tight market.

Single-family home sales decreased 0.6 percent last month to an annual rate of 4.81 million. Purchases of condominium and co-op units rose 1.6 percent to a 620,000 pace as first-time buyers made up 31 percent of sales, down from 33 percent a year ago.