Pending home sales, which can be used to gauge the future of the property transactions, declined in June from a month earlier, but marked 14 consecutive months of year-over-year gains.
The Pending Home Sales Index fell 1.4 percent to a mark of 99.3 from the previous month, but this was 9.5 percent above where it was in June 2011, according to the National Association of Realtors.
"Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities," said NAR chief economist Lawrence Yun. "We've been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors."
Home prices fell more than 30 percent in some areas following the real estate bubble burst, and has caused a number of owners to refrain from putting their properties up for sale. This sentiment is reflected in NAR's seller confidence index, which stood at just 41 out of 100 last month. In contrast, buyer confidence was recorded at a mark of 60.
Regionally, pending home sales in the Northeast declined 7.6 percent to a mark of 76.6 last month, while the Midwest experienced a 0.4 percent slip to 94.4, the report said. In addition, the South saw pending home sales fall 2 percent, while the West was the only region to report an increase, at 2.6 percent.
Further, with mortgage rates hovering at all-time lows, there has been a wave of refinancing demand across the country. Due to this influx, there have been significant delays in closing processes, which may have been a major cause of the declining pending home sales rate, Yun added.
More foreclosed houses could help expand shrinking inventory
However, a lack of available homes for sale is expected to leave many prospective buyers with limited options. Because of this, a revival of the foreclosure process could help with these shortages in certain areas and builders will need to double the construction rate of single-family units to meet demand, Yun said.
Additionally, now that many banks are taking extra steps to ensure distressed borrowers have exhausted all options before filing a foreclosure, the average number of days it takes to complete a home repossession process has also grown.