Existing home sales steadily increased for the third consecutive month in July, while stubbornly low inventory levels and rising prices are likely to blame for sales to first-time buyers falling to their lowest share since January, according to the National Association of Realtors.

Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.0% to a seasonally adjusted annual rate of 5.59 million in July from a downwardly revised 5.48 million in June. Sales in July remained at the highest pace since February 2007 (5.79 million), have now increased year-over-year for ten consecutive months and are 10.3% above a year ago (5.07 million).

Selma Hepp, chief economist at Trulia, says the housing market continues to show consistent improvement in sales and prices.

“However, the upcoming Fed meeting in September has led to a lot of speculation as to whether rates will rise, which may impact consumer confidence in the housing market in the coming months,” Hepp says. “But even if Americans start to question whether now is a good time to sell or buy, the truth is – if rates rise, the increase will likely be modest and gradual. In fact, mortgage rates would need to exceed 11% before renting becomes cheaper than buying a home nationally.”

She also pointed out the segmentation of the existing home sales by price.

“Much of the growth in existing home sales that we’re seeing is in the luxury market. That’s because most sales are happening in markets where the job market is robust and for-sale homes are relatively more expensive than in the rest of the country,” Hepp says. “Western states, such as California, have generally been the epicenter of both housing activity and job growth over the past year thanks to the job growth in higher-wage sectors, such as technology, health care and finance.”

Mark Fleming, chief economist at First American, notes that the gap between market capacity and actual existing-home sales is rapidly closing.

“Labor market conditions and interest rate levels remain favorable to the housing market and these factors are keeping the market capacity for existing-home sales steady, nearing an equilibrium rate just below six million sales. Pent-up supply is being released and existing owners are feeling more confident to place their homes on the market, helping to drive the actual sales level higher and close the gap between market capacity and actual existing-home sales quickly,” Fleming says.

Lawrence Yun, NAR chief economist, says the increase in sales in July solidifies what has been an impressive growth in activity during this year's peak buying season.

"The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now," he says. "As a result, current homeowners are using their increasing housing equity towards the down payment on their next purchase."

The median existing home price for all housing types in July was $234,000, which is 5.6% above July 2014. July's price increase marks the 41st consecutive month of year-over-year gains.

“The pace of existing sales has continued at a very healthy pace throughout the summer months, which is encouraging given the inventory shortage in most regions of the country,” says Quicken Loans Vice President Bill Banfield. “The market needs more new homes to be built to continue the momentum, so the trade up buyers can find their next home and provide inventory for those looking to enter the home buying market.”

Yun did have some concerns.

"Despite the strong growth in sales since this spring, declining affordability could begin to slowly dampen demand," says Yun. "Realtors in some markets reported slower foot traffic in July in part because of low inventory and concerns about the continued rise in home prices without commensurate income gains."

Total housing inventory at the end of July declined 0.4% to 2.24 million existing homes available for sale, and is now 4.7% lower than a year ago (2.35 million). Unsold inventory is at a 4.8-month supply at the current sales pace, down from 4.9 months in June.

The percent share of first-time buyers declined in July for the second consecutive month, falling from 30% in June to 28% — the lowest share since January of this year (also 28%). A year ago, first-time buyers represented 29% of all buyers.

"The fact that first-time buyers represented a lower share of the market compared to a year ago even though sales are considerably higher is indicative of the challenges many young adults continue to face," adds Yun. "Rising rents and flat wage growth make it difficult for many to save for a down payment, and the dearth of supply in affordable price ranges is limiting their options."

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage climbed to 4.05% in July from 3.98% in June — the first time above 4% since November 2014 (4%) and the highest since September 2014 (4.16%).

Properties typically stayed on the market for 42 days in July, an increase from June (34 days) but below the 48 days in July 2014. Short sales were on the market the longest at a median of 135 days in July, while foreclosures sold in 49 days and non-distressed homes took 41 days. Forty-three% of homes sold in July were on the market for less than a month.

All-cash sales increased slightly to 23% of transactions in July (22% in June) but are down from 29% a year ago. Individual investors, who account for many cash sales, purchased 13% of homes in July, up from 12% in June but down from 16% in July 2014. Sixty-four% of investors paid cash in July.

Representing the lowest share since NAR began tracking in October 2008, distressed sales4 — foreclosures and short sales — declined to 7% in July from 8% in June; they were 9% a year ago. Five% of July sales were foreclosures and 2% were short sales. Foreclosures sold for an average discount of 17% below market value in July (15% in June), while short sales were discounted 12% (18% in June).

Single-family home sales increased 2.7% to a seasonally adjusted annual rate of 4.96 million in July (highest since February 2007 at 5.08 million) from 4.83 million in June, and are now 11.0% above the 4.47 million pace a year ago. The median existing single-family home price was $235,500 in July, up 5.8% from July 2014.

Existing condominium and co-op sales fell 3.1% to a seasonally adjusted annual rate of 630,000 units in July from 650,000 units in June, but are still up 5.0% from July 2014 (600,000 units). The median existing condo price was $221,800 in July, which is 3.2% above a year ago.

July existing home sales in the Northeast decreased 2.8% to an annual rate of 700,000, but are still 9.4% above a year ago. The median price in the Northeast was $277,200, which is 1.3% higher than July 2014. In the Midwest, existing home sales were at an annual rate of 1.32 million in July, unchanged from June and 10.9% above July 2014. The median price in the Midwest was $186,500, up 6.6% from a year ago.

Existing home sales in the South increased 4.1% to an annual rate of 2.29 million in July, and are 9.6% above July 2014. The median price in the South was $203,500, up 7.0% from a year ago.

Existing home sales in the West rose 3.2% to an annual rate of 1.28 million in July, and are 11.3% above a year ago. The median price in the West was $327,400, which is 8.4% above July 2014.