Potential home buyers pulled back from a pricey and competitive housing market in May, signing fewer contracts to buy existing homes. A monthly index of so-called pending home sales from the National Association of Realtors fell 0.5 percent compared with April and was 2.2 percent lower than May of 2017. The expectation was for a 0.5 percent gain.

Sales have now fallen on an annual basis for five straight months. Pending home sales are a forward indicator of closed sales in June and July.

“Realtors in most of the country continue to describe their markets as highly competitive and fast moving, but without enough new and existing inventory for sale, activity has essentially stalled,” said Lawrence Yun, chief economist for the National Association of Realtors.

Regionally, pending home sales in the Northeast rose 2.0 percent for the month but were 4.8 percent below a year ago. In the Midwest, sales rose 2.9 percent monthly and fell 2.5 percent annually. Sales in the South declined 3.5 monthly and were unchanged from a year ago. The index in the West rose 0.6 percent compared to April but was 4.1 percent lower than a year ago.

The severe shortage of homes for sale is continuing into this summer, despite more new listings coming to the market. The supply of homes for sale at the end of May was higher than April, but still 6.1 percent lower than a year ago. The inventory of existing homes has fallen year-over-year for 36 consecutive months and stood at a 4.1 month supply given May’s sales pace. A six month supply is considered a balanced market between buyers and sellers.

Tight supply continues to push home prices higher. Higher mortgage rates are also adding to the affordability burden.

“With the cost of buying a home getting more expensive, it’s clear the summer months will be a true test for the housing market. One encouraging sign has been the increase in new home construction to a 10-year high,” added Yun. “Several would-be buyers this spring were kept out of the market because of supply and affordability constraints.”

Sales may not see gains in June either, given the drop in applications for mortgages. Mortgage rates haven’t moved much this month, but mortgage applications to purchase a home fell 6 percent last week compared with the previous week and were just one percent higher than the same week one year ago, according to the Mortgage Bankers Association.

Closed sales of existing homes also fell in May, with Realtors blaming weaker affordability. Sales of newly built homes, however, jumped unexpectedly higher in May, but the gains were all in the south where builders are busiest and prices are lowest.