PhotoThe number of existing homes sold in July fell for the first month since November 2015. It's not that fewer people wanted to buy homes. There were just fewer homes to buy.

The National Association of Realtors (NAR) reports home sales fell in comparison to both June sales and July 2015. Notably, the month-to-month drop was 3.2%.

The homes that were on the market brought higher prices. The median sale price rose 5.3% year-over-year, to $244,100.

“The primary culprit behind the decline in July is the lack of homes on the market,” said chief economist Jonathan Smoke in an email to ConsumerAffairs. “We simply can’t see growth in sales without having enough homes to sell.”

Good for sellers, not buyers

Smoke notes that this declining inventory over the last few months has led to higher prices for sellers, but made it more difficult for buyers to find a home that hits their needs.

Lawrence Yun, NAR's chief economist, agrees with that assessment, adding that declining inventories have reduced buyer traffic, even with historically low interest rates.

“With new condo construction barely budging and currently making up only a small sliver of multi-family construction, sales suffered last month as condo buyers faced even stiffer supply constraints than those looking to purchase a single-family home,” Yun said.

Inventory down 5.8%

Total housing inventory was nearly flat from June, but it's down 5.8% from a year ago. According to NAR stats, it has declined year-over-year for 14 straight months. Unsold inventory remains at under five months supply.

What's behind the declining inventory? Two things.

First, millions of homeowners are still underwater, owing more on their mortgages than their homes are worth. These homeowners are stuck since they can't sell without taking a loss. In normal times, many likely would sell their homes and move up.

Fewer new homes

The second factor is bigger. Since the housing crash, home builders are putting up about half the number of homes each year as they did during the real estate boom. Combined with fewer existing homes coming on the market, it has put a serious crimp in supply.

Tuesday's pleasantly surprising report of a surge in home building activity provides hope for the future, but Smoke concedes the short term may have some additional pain.

Adding up the limited supply of houses for sale, a potential for higher mortgage rates on the horizon, and dampened consumer confidence, he says he's less optimistic about rising sales in the next few months.

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