Dwindling Supply of Homes Pinches Pending Home Sales

December contracts to buy existing homes fell--is the housing recovery faltering?

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A record-low inventory of homes for sale muted signed contracts to buy existing homes in December according to an industry report released Monday, a sign that a stronger "sellers' market" could be building across the country.

[MORE: Existing-Home Sales Slip in December]

The National Association of Realtor's Pending Home Sales Index, a leading indicator of home sales based on contract signings, fell 4.3 percent in December missing analysts expectations for a 1 percent gain, but remains almost 7 percent higher than levels recorded a year ago. The data reflects contracts but not closings.

Realtors blamed a lack of supply rather than the lack of demand for the pullback in pending sales. While buyer foot traffic easily outpaced seller traffic according to the report, the dearth of affordable homes for the important first-time buyer set is limiting pending and existing home sales.

"Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options," NAR Chief Economist Lawrence Yun said in a statement. "We expect a seasonal rise of inventory in the spring to help, but a seller's market may be developing."

Experts have credited robust gains in pending and existing home sales seen last year to healthy investor interest, largely fueled by attractive home prices and rising rents. As investors and hedge funds have streamed onto the market to snap up real estate, the supply of affordable homes for sale has dwindled pushing up home prices. That in turn has prompted experts to doubt that the fundamentals of the existing housing market truly point to sound recovery.

[PHOTOS: U.S. Suffers Freezing Temps]

Still, contract activity has risen year-over-year for the past 20 months, Yun reminded, evidence that while uneven, the trend remains firmly in the upward direction. Even with tighter inventory, Yun expects existing-home sales to increase another 9 percent in 2013, following a 9 percent rise in 2012 thanks to pent-up demand and affordable conditions.

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