Existing-home sales slipped in May, declining 1.5% for the month to a seasonally adjusted annual rate of 4.55 million, according to data released today by the National Association of Realtors (NAR). Sales remained 9.6% above year-ago levels.

The Realtors association attributed the dip to low supply rather than softened demand. "The normal seasonal upturn in inventory did not occur this spring," said Lawrence Yun, chief economist at the NAR, in a released statement, adding that inventory shortages in some areas have been building for months.

However, Patrick Newport, U.S. economist at IHS Global Insight, pointed the finger instead at pull-back from investors as available distressed properties have dwindled. Indeed, Yun pointed out that inventory tightness is being particularly felt in lower price ranges across most of the country, as first-time buyers and investors with cash compete for inexpensive and distressed homes. "Realtors in Western states have been calling for an expedited process to get additional foreclosed properties onto the market because they have more buyers than available property," Yun said.

In May, distressed properties accounted for 25% of existing-home sales, compared to 35% in January.

However, the lack of supply combined with the drop in distressed sales helped to drive prices higher for the month. The national median among all existing homes moved up 2.9% from April to $182,600, a 7.9% gain from year-ago levels. May was the third consecutive month to report an annual improvement, marking the first three-month run of year-over-year price gains since early 2006.

Some of the strength in prices can also be attributed to banks’ growing acceptance of short sales. In May, 15% of existing-home sales were foreclosures and 10% were short sales—a significant shift compared to January, when 22% of sales were foreclosures and 13% were short sales.

That trend is likely to continue, says Daren Blomquist, vice president at RealtyTrac, who anticipates distressed sales will eventually reach a 50/50 split between REOs and short sales, compared to the 75/25 split seen in recent years. That news is good for home prices; the NAR reports that in May foreclosures sold at an average discount of 19%, while short sales were down 14% compared to non-distressed properties.

See the NAR’s full release on existing-home sales in May.

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: Greenville, SC.