Sales of existing homes increased in May, beating analyst expectations, as an increasing volume of distressed real estate sales -- including REO and borrower short-sales -- helped resales edge up 2 percent to a 4.99 million annual rate, according to statistics released Thursday morning by the National Association of Realtors. The May estimate is still 15.9 percent off from last year's pace, however, the group said in a press statement. Median prices fell to $208,600 in May, down 6.3 percent from a year ago when the median was $222,700, an outcome that the NAR said was due in part to mushrooming REO inventory in key housing markets. "Foreclosures and short sales appear to be a larger part of the market, particularly in California, and are creating a drag on current home prices," said NAR chief economist Lawrence Yun. While a drag on prices, distressed real estate also appears to be spurring a growing number of sales transactions in a side of the market that has historically been so small relative to so-called "retail sales" that it has rarely, if ever, put a dent into the national housing picture. But the current market is, if anything, unusual. An earlier story on HW ("A Tale of Two Housing Markets: There’s REO, and Then There’s Everything Else," June 2) looked at how bank-owned and other distressed asset sales are affecting key housing markets -- essentially driving a wedge between more traditional home resales, where prices have remained more stable, and the distressed market, where prices have taken a much sharper downward turn. The as-of-yet unanswered question is whether or how long the rest of the more traditional "retail" housing market in certain key markets can hold out in its desire for higher home prices, relative to the aggressive pricing now being exhibited by institutional sellers. The NAR, of course, was quick to pop the sales numbers as proof that borrowers are finally "getting off the fence," citing "greater access to affordable mortgages" -- which, if anything, has little to do with the trending in current transaction volume. Most REO is purchased by investors, rather than owner-occupants, for one; secondly, access to mortgages is more constricted now than it has been at any time in recent memory. In its release of statewide existing home resale data Wednesday, the California Association of Realtors was less sanguine on the sales bump within the state, noting that most of it was of the "distressed sales" variety. The increased activity, however, brings with it a concomitant positive -- some lightening of the inventory overhang looming over key local housing markets. Total housing inventory at the end of May fell 1.4 percent to 4.49 million existing homes available for sale, the NAR said, which represents a 10.8-month supply at the current sales pace, down from a 11.2-month supply in April. For more information, visit