NEW YORK ( TheStreet) -- Home sales may be rising, but falling inventory poses challenges for buyers. "We saw a drop in December inventory, the first decline in 16 months," Lawrence Yun, chief economist with the National Association of Realtors, said Friday in an interview with TheStreet. "Throughout 2014, we saw modest increases in inventory, but now we only have a 4.4-month of supply and that is beginning to re-accelerate prices." Must Read: Jim Cramer's Eight Best Stock Picks in the Housing Sector The 2.4% rise in December existing-home sales, coupled with an 11.1% drop inventory, creates a worrisome combination that helped push median existing-home prices up 6% year-over-year, according to the National Association of Realtors. Housing analysts say a healthy market has a six-month supply of inventory. Higher prices could continue to keep hopeful buyers on the sidelines, as affordability decreases. "But housing starts are beginning to rise, which means more inventory will hit the market during the spring and summer of next year, so that will provide more choices for consumers," Yun added. Housing starts rose 4.4% in December to 1,089,000, the Commerce Department said on Wednesday. Regardless of inventory and prices, the key to unlocking pent-up demand are higher wages, which still remain tepid. "House price gains during the past several years more than offset the drop in mortgage yields," Steve Blitz, chief economist of ITG Investment Research, wrote in a note. "The result has priced out some number of first time home buyers, on a national scale. This lack of affordability and still low nominal growth in wages will likely serve to limit the coming upturn in sales but not deny one from occurring." Must Read: 10 Stocks Billionaire David Einhorn Loves for 2015 -Written by Scott Gamm in New York. Follow @ScottGamm.
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