The rate of existing home sales saw its largest year-over-year decline in three years to start off the new year, according to the latest report by the National Association of Realtors.

The seasonally adjusted annual sales rate for existing single-family homes, condominiums, co-ops, and townhomes stood at 5.38 million in January. This was down 3.2 percent from December's downwardly revised pace of 5.56 million and 4.8 percent from the previous year.

The drop was the largest proportional decrease since August 2014, which had an annual decline in existing home sales of 5.5 percent. The sales pace was at its slowest point since September's figure of 5.37 million.

Lawrence Yun, chief economist at the National Association of Realtors, blamed inventory shortages for the pronounced slowdown. Although the 1.52 million existing homes for sale in January marked a 4.1 percent increase from the previous month, supply was also down 9.5 percent from January 2017 – making it the 32nd straight month where inventory shrank from the previous year.

"The utter lack of sufficient housing supply and its influence on higher home prices muted overall sales activity in much of the U.S. last month," said Yun. "While the good news is that Realtors in most areas are saying buyer traffic is even stronger than the beginning of last year, sales failed to follow course and far lagged last January's pace. It's very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth."

For the 71st consecutive month, the median price for an existing home was up from the previous year. The typical home sold in January had a price of $240,500, a year-over-year increase of 5.8 percent.

Single-family home sales made up the bulk of existing transactions, with a seasonally adjusted annual rate of 4.76 million. This was down 3.8 percent from the previous month and 4.8 percent from the previous year. The median price for a single-family home saw an annual gain of 5.7 percent to $241,700.

Condomonium and co-op sales saw some growth, increasing 1.6 percent from December, but the annual pace of 620,000 unit sales was still 4.6 percent below the pace of January 2017. The median price for an existing condominium or condo rose 7.1 percent from the previous year to $231,600.

Yun said the continuing increase in prices is a sign of strong demand for housing but weak supply. He said that while single-family home construction has lagged over the past 10 years, there are also indicators that it may be starting to improve. Yun said an increase in available homes for sale could help reign in price growth, which could be keeping some potential buyers from committing to purchasing a property.

"There was a nice jump in new home construction in January, and homebuilder confidence is high," he said. "These two factors will hopefully lay the foundation for the building industry to meaningfully ramp up production as this year progresses."

Mortgage rates have also been slowly climbing, increasing for the fourth straight month in January. According to Freddie Mac, the average commitment rate for a 30-year fixed rate mortgage during the month was 4.03 percent, up from 3.95 percent in December and the 2017 average of 3.99 percent.

"The gradual uptick in wages over the last few months is a promising development for the housing market, but there's risk these income gains could be offset by the recent jump in mortgage rates," said Yun.

January's conditions likely helped cool the share of first-time buyers, who made up 29 percent of existing home sales in January. This share was down from 32 percent in December and 33 percent in January 2017.

Elizabeth Mendenhall, president of the National Association of Realtors, said several real estate agents were reporting that buyers were getting an early start on spring house hunting. She recommended that those interested in buying a home this year should get pre-approved for a mortgage and start having conversations with their agent to better prepare them for a competitive market.

"With demand exceeding supply in most areas, competition will only heat up in the months ahead," said Mendenhall. "Beginning the home search now could lead to a successful and less stressful buying experience."

In January, the typical existing home was on the market for 42 days before finding a buyer. This was two days slower than in December, but eight days faster than January 2017. Forty-three percent of homes sold during the month found a buyer within a month.

Five percent of existing homes sold in January were distressed properties, including 4 percent that were foreclosures and 1 percent that were short sales. The distressed property share was unchanged from the previous month and down from 7 percent in the previous year.

Individual investors purchased 17 percent of existing homes sold in January, up from 16 percent in both the previous month and previous year. These buyers usually account for the bulk of all-cash sales, which made up 22 percent of existing home sales in January – up from 20 percent in December, but down from 23 percent in January 2017.

The Northeast region had an existing home sales rate of 730,000, down 7.6 percent from the previous year and 1.4 percent from the previous month. The median price for an existing home sold in this area was $269,100, a year-over-year increase of 6.8 percent.

In the West, existing home sales were down 5 percent from December and 9.5 percent from January 2017 to an annual rate of 1.14 million. The median price for an existing home in this region was up 8.8 percent to $362,600.

The South had the least pronounced decline in sales, with its annual sales rate falling 1.3 percent from the previous month and 1.7 percent from the previous year to 2.26 million. Existing homes in the region typically sold for $208,200, up 4.3 percent from the previous year.

In the Midwest, the annual rate of 1.25 million sales marked a drop of 6 percent from December and 3.8 percent from January 2017. The median sales price of $188,000 was up 8.7 percent from the previous year.