Desire to buy a home collides with a lack of supply as builders focus on rental construction

Markets Associated Press

The National Association of Realtors reports on June sales of existing homes Wednesday at 10 a.m. Eastern.

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RISING SALES: Economists believe that sales rose 0.9 percent last month to a seasonally adjusted annual rate of 5.4 million homes, according to a survey by the data firm FactSet. It would be the fourth straight month of sales topping an annual rate of 5 million.

HIGH DEMAND, MEAGER SUPPLIES: Home-buying has surged as more buyers have flooded into the real estate market. More Americans have down payment savings because of robust hiring over the past 21 months and an economic recovery now in its sixth year. But the increase in demand has yet to draw more sellers, causing tight inventories and rising prices that could soon restrain sales growth, economists and real estate brokers say.

A mere 5.1 months' supply of homes was on the market in May, compared to an average of six months in a healthy market.

Some markets are barely adding any listings. The condominium market in Massachusetts contains just 1.8 months' supply, according to a Federal Reserve report this month. The majority of real estate agents in the Atlanta Fed region — which ranges from Alabama to Florida — said that inventories were flat or falling over the past year.

The limited supplies could prove a drag on sales in the coming months. Average home prices have climbed 7.9 percent in the 12 months ended in May to $228,700, rising to levels that are increasingly stretching family budgets and may create affordability problems for many potential buyers. Prices have increased nearly four times faster than wages, as average hourly earnings have risen just 2 percent over the past 12 months to $24.95 an hour, according to the Labor Department.

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The tight inventory also gives buyers fewer options, prompting some to re-sign their leases and wait until a better selection of properties comes onto the market.

New construction has yet to satisfy rising demand, as builders have instead focused more of their efforts on the growing rental market.

Approved building permits rose increased 7.4 percent to an annual rate of 1.34 million in June, the highest level since July 2007, the Commerce Department said last week. Almost all of the gains came for apartment complexes, while permits for houses last month rose only 0.9 percent.

The share of Americans owning homes has fallen this year to a seasonally adjusted 63.8 percent, the lowest level since 1989.

Real estate had until recently lagged much of the six-year rebound from the recession, hobbled by the wave of foreclosures that came after the burst housing bubble.

But the job market found new traction in early 2014. Employers added 3.1 million jobs last year and are on pace to add 2.5 million jobs this year. As millions more Americans have found work, their new paychecks are increasingly going to housing, both in terms of renting and owning.

Low mortgage rates have also helped, although rates are now starting to climb to levels that could slow buying activity.

Average 30-year fixed rates were 4.09 percent last week, according to the mortgage giant Freddie Mac. The average has risen from a 52-week low of 3.59 percent.