Tighter supplies holding back home sales

— -- U.S. home sales slipped in May as tight supplies hampered the market amid growing economic headwinds.

Existing home sales slipped 1.5% in May from April to a seasonally adjusted annual rate of 4.55 million, but were still almost 10% above last year's pace.

The "slight pullback" in sales of existing homes is largely due to broad-based shortages of lower-price homes for sale rather than softening demand, says Lawrence Yun, National Association of Realtors chief economist.

Normally, more sellers put homes on the market in the spring, a big buying season. That didn't happen this year, Yun says, given the huge number of people who owe more on their homes than they're worth, and still-declining prices in many areas.

The NAR says shortages of lower-price homes are evident in much of the country except the Northeast and that supplies are tight in all but upper-end markets in the West.

The tight supplies are helping home prices. NAR data show median home prices in May up almost 8% from a year ago.

But NAR data don't account for the mix of homes sold. The share of more expensive homes has risen, while the share of distressed homes has fallen. That drives median prices higher.

Other data sources that adjust for the mix of homes sold also show prices improving. The Federal Housing Finance Agency said Thursday that U.S house prices were up 0.8% in April from March.

As prices rise, more sellers will likely list homes for sale, says Zillow chief economist Stan Humphries. That would expand supply but could also depress prices.

May's decline in the pace of existing home sales was not surprising, given the recent slowdown in job creation, and serves as a reminder that housing demand remains "mired in a tug of war" between sluggish job and credit growth and improved housing affordability, says Alistair Bentley, an economist with TD Economics.

Other economic news Thursday unnerved stock markets. One report showed China's manufacturing activity fell this month, and the Federal Reserve Bank of Philadelphia said manufacturing in its region shrank at the fastest pace since August. Jobless claims were little changed from last week, indicating a weak job market in danger of stalling.

With such economic indicators weakening "the recovery in housing market demand has lost a little bit of momentum, says Paul Diggle, economist with Capital Economics. He says home sales should improve again later in the year if the economy continues to grow at or around current rates.