In May, home-sale growth continued to lag, highlighting a slowdown in inventory, according to new data from Redfin.

According to the company’s analysis, the number of homes for sale at the end of the month rose by 2.5% year over year.

This means May experienced the smallest annual increase in home supply within the last eight months.

Redfin Chief Economist Daryl Fairweather said although recent surges in mortgage applications reflect heightened homebuyer demand, a lack of inventory continues to prevent growth.

“We haven’t yet seen a commensurate increase in U.S. home sales, and I don’t expect sales to increase substantially in the long run. That’s because there still aren’t enough homes for sale for all of the people who want to buy homes,” Fairweather said. “In May, inventory posted its smallest increase in eight months, and fewer new listings came on the market than last year.”

While low rates and rising prices will lure sellers this summer, the lack of new construction will halt sales growth, according to Fairweather. 

Fairweather may be right as Redfin’s data indicates that only 48 of the 85 metros tracked by Redfin saw an increase in sales from 2018.

The latest Housing Market index produced by the  National Association of Home Builders and Wells Fargo revealed that homebuilder confidence retreated two points to 64 in June.

This downturn was largely attributed to labor and cost concerns that have slowed homebuilding, according to NAHB Chief Economist Robert Dietz.  

“Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers,” Dietz said. “And while new home sales picked up in March and April, builders continue to grapple with excessive regulations, a shortage of lots and lack of skilled labor that are hurting affordability and depressing supply.”