Existing-home sales gained momentum in June, reaching an annual pace of 5 million sales for the first time since October 2013, according to the National Association of Realtors' latest national housing report.
Rising inventories also are pushing the overall supply of homes for sale toward a more balanced market, with unsold inventories 6.5 percent higher than a year ago, NAR noted.
Still, the market is facing several headwinds that continue to subdue a more robust recovery. NAR noted three in its most recent housing report:
1. Sluggish new-home construction: While overall housing inventories showed improvement in June, inventory problems continue to weigh on the market and could become more problematic if new-home construction doesn't increase in more markets, NAR notes. According the NAR, new-home construction needs to rise by at least 50 percent for a complete return to a balanced market.
2. Stagnant wage growth: Stagnant wage growth is holding back what should be a stronger pace of sales. While hiring has improved, the lack of wage increases is leaving a large pool of potential homebuyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation hurts affordability.
3. Dwindling first-time homebuyers: The percentage of first-time buyers continues to be low by historical standards. First-time home buyers made up 28 percent of the market in June, down from a typical 40 percent of the market historically.
Steve Brown, NAR president, said that some prospective buyers who have above average credit scores but low down payments are being deterred from home ownership by the high cost of FHA mortgage insurance.