Contract signings on existing-home purchases picked up again in May, according to the National Association of Realtors (NAR), whose Pending Home Sales Index rose 5.9% for the month to a reading of 101.1, matching the highest level seen in two years. Year-over-year, the index was up 13.3%. (The index measures contracts but not closings.)

In a statement discussing the numbers, Lawrence Yun, chief economist at the NAR, expressed concern that contract activity could be held back in the near future if more existing homes are not made available for sale. Inventory of existing homes in April stood at 2.49 million units, 20.4% below year-ago levels, as many homeowners remain pinned under an upside down mortgage. The NAR estimates 15% of homeowners are underwater on their loans.

However, that could mean more business for home builders, particularly at the entry level, where customers are facing a dearth of available existing units and aren’t burdened by a home to sell before making a purchase.

Yun estimates that housings starts will be up 26% this year and will then improve another 50% in 2013. "If housing starts do not rise in a meaningful way over the next two years due to the difficulty in getting construction loans, and barring an unexpected shift in the economy, the steady shedding of inventory could lead to shortages where home prices could get bid up close to 10% in 2013," he said.

See the NAR’s full release discussing May’s pending home sales numbers.

Claire Easley is a senior editor at Builder.

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