Acute inventory shortage drives up sales of existing homes.

The sales of existing homes reached its highest peak from November 2009 in May. The National Association of Realtors note that the sale was fueling because of a federal tax stimulus.

Data from NAR show that the annual sales rate data (adjusted seasonally) in May this year (5.18 million homes) is 12.9 percent higher than May 2012 (4.59 million homes) and 4.2 percent  higher than that of April (4.97 million homes).

“The huge number of units sold is overwhelmingly reassuring. However, it is unlikely to notice any growth in home availability despite the promising gain in May, unless there is an escalation in construction of new homes. At least 50 percent more construction is needed, “ said Lawrence Yun, Chief Economist, NAR. The rise in home prices is very fast, and unless there is additional supply through building new homes price growth is likely to come down to a moderate level.

Meanwhile, the inventory of listed existing homes rose by 3.3 percent to reach 2.2 million in May. NAR points out that at the current home sales rate represents a 5.1 month home supply at the current sales rate. This is lesser than 5.2 months April.

When the supply was a 6.5 month, the inventory a year ago was 10.1 less.

This shortage in inventory is leading to bidding battles, and some markets are registering home sales like hotcakes.