Existing home sales declined 1.5% in May to a seasonally adjusted annual rate of 4.55 million in May from 4.62 in April due to limited supplies of housing inventory, according to the National Association of Realtors. While they are down from last month, the numbers are still 9.6% above the 4.15 million-unit pace in May of last year.

Lawrence Yun, NAR's chief economist, said inventory shortages in certain areas of the country have been building all year, and the drop in sales is "more likely due to supply constraints rather than softening demand," noting that the normal seasonal bump in inventory did not occur this spring.

According to the release, there are broad-based shortages of inventory in the majority of the country with the exception of the Northeast. The problem is harshest in the West, where supply is extremely tight in all price ranges except for the upper end, where Yun said Realtors are calling for an expedited process for foreclosures to get addition properties onto the market as they have more interested buyers than they have properties.

"The report shows while major gateway cities are experiencing rapid inventory depletion and price appreciation, the broader US housing market is still experiencing the growing pains associated with the downturn over the past few years ," said John Tashjian, principal, Centurion Real Estate Partners in New York. "As the inventory of cheap properties depletes from the system, the US housing market will have to wait until the broader economy improves in order to see price appreciation nationwide."

At the end of may, total housing inventory fell 0.4% to 2.49 million existing homes available for sale, representing a 6.6-month supply at the current sail price – up 0.1% from April. Listed inventory is down 20.4% from a year ago when there was a 9.1-month supply.

Unsold inventory is also down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

"The recovery is occurring despite excessively tight credit conditions and higher down payment requirements, which are negating the impact of record high affordability conditions," Yun said.1.

The national median existing-home price for all housing types was up 7.9% to $182,600 in May from a year ago — the third consecutive month of year over year price gains. The last time a three month consecutive increase occurred was from March to May of 2006.

Distressed home sales accounted for 25% of May sales — made up of 15% foreclosures and 10% short sales. This is down from 28% in April and 31% in May of last year. Foreclosures sold for an average discount of 19% under market value in May and short sales were discounted by 14%.

First time buyers were down slightly as a percent of purchasers in May to 34% from 35% in April and 36% in May 2011.

All cash sales were also down as a percent of transactions to 28% in May from 29% in April and 30% in 2011. This drop can be explained by a lower number of investor purchases. Investors purchased 17% of homes in May, down from 20% in April and 19% in May 2011. Yun said these numbers reflect a "modest increase" in traditional repeat homebuyers for the month.

Single-family home sales dropped 1% to a seasonally adjusted annual rate of 4.05 million in May from 4.09 million in April, but are still 10.4% above the 3.67 million-unit level in May 2011. The median existing single-family home price was $182,900, up 7.7% from May 2011.

Existing condominium and co-op sales tumbled 5.7% to a seasonally adjusted annual rate of 500,000 in May from 530,000 in April, but are still 4.2% higher than the 480,000-unit pace in May of last year. The median existing condo price was $180,000 in May, which is 8.8% above May 2011.

Regionally, sales dropped in every area but the Midwest, where sales were up 1% in May to a pace of 1.04 million and are 19.5% above a year ago. The price is also up in the Midwest, now at $147,700, up 7.8% from May of last year.

In the Northeast, sales fell most at 4.8% to an annual level of 590,000 in May, but are still 7.3% higher in May 2011. The median price in the Northeast was up 3.8% from a year ago, now at $250,700.

In the South, existing home-sales slipped slightly by 0.6% to an annual level of 1.78 million in May, but are still 9.2% higher than May of last year. The median price in the region was $159,700, up 7.8 from one year ago.

In the West, sales declined 3.4% to an annual pace of 1.14 million in May, still 3.6% above May 2011. The median price was $233,900, up sharply by 13.4% from last year. Yun said the sharp price increase there is "largely from more sales at the upper end of the market."