The pent-up housing demand apparently saw its shadow and is still in hiding – existing home sales declined in March, the first real month of the spring buying season, even as prices continue to rise.

Sales of existing homes declined 0.2% in March to a seasonally adjusted annual rate of 4.59 million, the slowest it’s been since July 2012, according to the National Association of Realtors.

Affordability challenges and a declining inventory hampered sales, NAR says.

The median sales price of used homes hit $198,500 in March, up 7.9% from the year-earlier period. March's inventory was 1.99 million existing homes for sale, a 5.2-month supply at the current sales pace.

The Federal Housing Finance Administration separately reported that U.S. house prices rose in February, with an increase of 0.6% on a seasonally adjusted basis from the previous month.

The FHFA’s measure is for February and considers different metrics and data sets than the NAR’s, which is for March. The FHFA HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. From February 2013 to February 2014, house prices were up 6.9%.

The 0.1% decrease in November 2013 ended a 21-month trend of price increases that had begun in February 2012. The previously reported 0.5% increase in January was revised downward to 0.4%.

“From a regional standpoint, sales were weak in the South and West, down 3.0% and 3.7%, respectively. Sales in the Midwest and North, on the other hand, were up 4.7% and 9.1%, respectively,” noted Sterne Agee chief economist Lindsey Piegza. Bottom line, demand for housing remains uneven after months of heightened sales activity earlier in 2013. Now against the backdrop of minimal income growth and a still-tepid labor market, demand continues to wane.

“For potential homebuyers, rising prices are eroding affordability, putting further downward pressure on consumer’s ability and willingness to finance a home purchase. From the owner’s perspective however, rising prices are helping to create and maintain a wealth effect, fueling (or at least helping to support) consumer spending,” she said.

NAR chief economist Lawrence Yun said that current sales activity is underperforming by historical standards.

“There really should be stronger levels of home sales given our population growth,” he said. “In contrast, price growth is rising faster than historical norms because of inventory shortages.”

Yun expects some improvement in the months ahead.

“With ongoing job creation and some weather delayed shopping activity, home sales should pick up, especially if inventory continues to improve and mortgage interest rates rise only modestly.”

The median existing-home price for all housing types in March was $198,500, up 7.9% from March 2013. Distressed homes – foreclosures and short sales – accounted for 14% of March sales, down from 16% in February and 21% in March 2013.

“With rising home equity, we expect distressed homes to decline to a single-digit market share later this year,” Yun said.

Ten percent of March sales were foreclosures, and 4% were short sales. Foreclosures sold for an average discount of 18% below market value in March, while short sales were discounted 12%.

First-time buyers accounted for 30% of purchases in March, up from 28% in February; they were 30% in March 2013.

NAR President Steve Brown, co-owner of Irongate, Inc. said first-time buyers have been stuck in a rut.

“There are indications that the stringent mortgage underwriting standards are beginning to ease a bit, particularly regarding credit score requirements, but they remain a headwind for entry-level and single-income home buyers,” he said. “We also have tight inventory in the lower price ranges where many starter homes are found, but rising new-home construction means some owners will be trading up and more existing homes will be added to the inventory. Hopefully, this will create more opportunities for first-time buyers.”

All-cash sales comprised 33% of transactions in March, compared with 35% in February and 30% in March 2013. Individual investors, who account for many cash sales, purchased 17% of homes in March, down from 21% in February and 19% in March 2013. Seventy-one percent of investors paid cash in March.