The inventory of existing homes fell 3.5 percent from April to May, with the 3.8 million homes on the market representing 9.6 months of supply, down from 10.1 months in April, the National Association of Realtors said. Economists generally consider a six-month supply of homes a healthier balance between supply and demand.

Sales of existing homes were up 2.4 percent in May, to a seasonally adjusted rate of 4.77 million units, which helped nudge inventory in the right direction, though they were 3.6 percent below the May 2008 rate.

It was the first time sales have increased for two consecutive months since September 2005. The increase was lower than expected, however, because some contracts are falling through because appraisals prevent buyers from obtaining loans, NAR said.

Distressed properties accounted for 33 percent of sales, down from 45 percent in April and just over half in March, but continue to "downwardly distort" the median home price, NAR said. At $173,000, the national median resale-home price for all housing types in May was down 16.8 percent from a year earlier.

"In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment," NAR Chief Economist Lawrence Yun said in a statement. "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."

NAR said first-time buyers accounted for 29 percent of sales in May, down from 40 percent in April and 53 percent in March. Yun said it’s typical to see an increase in repeat buyers around this time of the year, as they benefit from sales to entry-level buyers.

Breaking the numbers down, NAR said single-family home sales were up 1.9 percent from April to May, to a seasonally adjusted annual rate of 4.25 million, but were off 3 percent from a year ago. The median existing single-family home price fell 16.1 percent from a year ago, to $172,900. …CONTINUED

Existing condominium and co-op sales increased 6.1 percent from April to May, to a seasonally adjusted annual rate of 520,000 units, but were down 8.9 percent from a year ago. The median existing condo price fell 21.9 percent from a year ago, to $173,800.

Regionally, existing-home sales in the Northeast rose 3.9 percent from April to May, to an annual level of 800,000, but were down 10.1 percent from a year ago. At $243,600, the median price in the Northeast was off 12.5 percent from a year ago.

Existing-home sales in the Midwest jumped 9 percent from April to May, to an annual pace of 1.09 million, but were down 4.4 percent from a year ago. The median price in the Midwest was down 10.4 percent from a year ago, to $145,800.

In the South, existing-home sales were unchanged at an annual pace of 1.74 million in May and down 8.9 percent from a year ago. The median price in the South fell 9.9 percent from a year ago, to $157,400.

Existing-home sales in the West slipped 0.9 percent from April to May, to an annual rate of 1.14 million, but were up 11.8 percent from a year ago. At $197,700, the median price in the West was down 30.6 percent from a year ago.

***

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