Existing home sales recovered after last month’s drastic tumble, increasing 2.4% to a seasonally adjusted annual rate of 5.04 million in December from 4.92 million last month, the National Association of Realtors’ newest housing report said.

From last year, December sales were higher by 3.5% and are now above year-over-year levels for the third straight month.

Lawrence Yun, NAR chief economist, explained that sales picked up at the end of 2014 despite a slow start to the year.

“Home sales improved over the summer once inventory increased, prices moderated and economic growth accelerated,” he said.

For the whole year, there were 4.93 million sales, a 3.1% decline from 2013 (5.09 million).

The national median existing-home price was $208,500, the highest since 2007 ($219,000) and a 5.8% increase from 2013 ($197,100).

Total housing inventory at the end of December dropped 11.1% to 1.85 million existing homes available for sale, which represents a 4.4-month supply at the current sales pace – down from 5.1 months in November.

Additionally, unsold inventory is now 0.5% lower than a year ago (1.86 million).

“A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4 percent interest rates,” said Yun.

“Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range,” he continued.

The median existing-home price for all housing types in December was $209,500, up 6% from December 2013. This marks the 34th consecutive month of year-over-year price gains.

The percent share of first-time buyers was 29% in December, down from 31% in November but up from a year ago (27%).

The good news is that Realtors are optimistic about the Federal Housing Administration’s plan to reduce mortgage insurance premiums, which will then help ease the financial burden on first-time homeowners, explained NAR President Chris Polychron, executive broker with 1st Choice Realty in Hot Springs.

 “NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for homebuyers,” he said. “Realtors support responsible lending to qualified borrowers and the move to lower premiums will enable more buyers to enter the market while continuing to protect taxpayers from the risky lending practices that led to the housing crash.”