Existing homes continued to sell quickly in July, with more than half finding a buyer within a month of listing. However, the overall pace of existing home sales retreated for the second month in a row as buyers encountered persistent affordability and inventory challenges.

According to the National Association of Realtors, sales of existing single-family homes, townhouses, condominiums, and co-ops were proceeding at a seasonally adjusted annual rate of 5.44 million transactions. This pace was the slowest of 2017, down 1.3 percent from June's downwardly revised figure of 5.51 million. However, it still marked a year-over-year increase of 2.1 percent.

Single-family homes had an annual sales rate of 4.84 million transactions, slipping 0.8 percent from June but up 1.7 percent from July 2016. Condominiums and co-ops had a pace of 600,000 sales, down 4.8 percent from the previous month but up 5.3 percent from the previous year.

"Buyer interest in most of the country has held up strongly this summer and homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall affordability put the brakes on what should have been a higher sales pace," said Lawrence Yun, chief economist at the National Association of Realtors. "Contract activity has mostly trended downward since February and ultimately put a large dent on closings last month."

The supply of existing homes for sale has experienced year-over-year declines for more than two straight years. There were 1.92 million existing homes for sale in the United States at the end of July, down 9 percent from the previous year. July marked the 26th consecutive month where the inventory of existing homes for sale has been lower than the same month in the previous year.

Tightening inventory has resulted in faster home sales, with July marking the fourth month in a row where the average existing home sold in 30 days or less. The average property sold in July spent 30 days on the market before finding a buyer, two days slower than the previous month but six days faster than in July 2016. Fifty-one percent of existing homes sold in July had been listed for less than a month.

This trend has also resulted in more competition for available homes, with sales prices showing year-over-year increases for 65 straight months. The median sales price among existing homes in July was $258,300, a 6.2 percent increase from July 2016. The median price for a single-family home rose 6.3 percent to $260,600, while the median condominium price was up 5.3 percent to $239,800.

Mortgage rates were also up in July. According to Freddie Mac, the average rate on a conventional fixed rate 30-year mortgage was 3.97 percent. This was up from 3.9 percent in June and an average of 3.65 percent in 2016.

"Home prices are rising above incomes and way too fast in many markets," said Yun. "Realtors continue to say prospective buyers are frustrated by how quickly prices are rising for the minimal selection of homes that fit buyers' budget and wish list."

William E. Brown, president of the National Association of Realtors, said buyers often mistakenly believe that they need to have 20 percent of the sales price on hand in order to purchase a home. He said this belief is particularly prominent among first-time buyers. Brown said that in each month of 2017, about three out of every five buyers who has financed their purchase made a down payment of 6 percent or less.

"Potential buyers with solid employment and manageable levels of debt will find that there are mortgage options available," said Brown. "Talk to a lender to find out what you qualify for based on your savings and let that guide you as you begin your home search with a Realtor."

Thirty-three percent of existing home buyers in July were purchasing their first home. This share of first-time buyers was up from 32 percent in both June and July 2016, but down from the annual share of 35 percent in 2016.

Thirteen percent of sales went to individual investors, holding steady from the previous month and up from 11 percent in July 2016. Investors typically account for the bulk of cash purchases, which made up 19 percent of existing home sales in July – up from 18 percent in the previous month, but down from 21 percent in the previous year.

Distressed properties accounted for 5 percent of transactions in July, unchanged from the previous year and up from 4 percent in June. Four percent of all sales were foreclosures, while 1 percent were short sales.

The Northeast region had the largest drop in existing home sales, which plunged 14.5 percent from June and 1.5 percent from July 2016 to an annual rate of 650,000. The median price for an existing home in the region was $290,000, a year-over-year increase of 4.1 percent.

Sales were also down in the Midwest, which had an annual rate of 1.25 million transactions. This pace fell 5.3 percent from the previous month and 1.6 percent from the previous year. The median price for an existing home sale in this region was $205,400.

The South and West each had increases in existing home sales. In the former region, sales were up 2.2 percent from June and 3.6 percent from July 2016 to an annual rate of 2.28 million. The median sales price increased 6.7 percent to $227,700.

In the West, existing home sales climbed 5 percent from both the previous month and previous year to an annual rate of 1.26 million. The median sales price increased 7.6 percent to $373,000.