Shrinking inventories and concern over a possible increase in mortgage rates drove up sales of new and existing homes in May. Along with sales, they also drove up prices, placing homeownership further out of reach for lower-income, younger and first-time buyers.

Moreover, current homeowners thinking of selling while the market is on an upward trend are faced with the dilemma of whether they can find an affordable, suitable replacement, thus further delaying potential inventory from coming onto the market. Relief, however, may be on the way.

May witnessed an about-face in the market, with activity rebounding after an industrywide slump in April. Sales of new homes rose 2.9 percent in May compared to April, which experienced an 11 percent drop, and were up nearly 9 percent from the same time last year. Likewise, existing home sales went up 1.1 percent, following a 2.3 percent decrease in April, bringing total sales 2.7 percent higher than a year ago.

Many sellers also saw the value of their homes increase significantly. The U.S. Census Bureau reports the median price of a new home hit $345,800 in May, and the average sales price was $406,400. The National Association of Realtors announced that the median sales price of an existing home hit a new record high of $252,800, up nearly 6 percent from the year before.

On the supply side, the picture was not so rosy. New home starts (in number of units) declined, for the third month in a row, by 5.5 percent in May, and are down 2.4 compared from a year ago. New single-family home starts fell 3.9 percent.

Requests for permits also slipped, for the second month in a row, by 4.9 percent and were down just under 1 percent from a year ago. Single-family permit requests dropped nearly 2 percent. Inventory of new homes was at 5.3 months, according to the Census Bureau, well below normal levels.

Residential construction (in dollar volume) dropped 4 percent from April, according to Dodge Date & Analytics. Multifamily construction declined 10 percent, after a two-month upward trend, and single-family construction, down 2 percent, fell for the third month in a row. The National Association of Home Builders announced that builder confidence, while still positive, slid 2 points in June, with builders reporting softening in current sales, future sales expectations and buyer traffic.

Inventory of existing homes increased 2.1 percent in May, which helped to boost sales. But even with the increase, inventories were 8.4 percent below what they were a year ago, the NAR noted. The scarcity of inventory is not only driving up prices, but is also substantially reducing the time homes remain on the market, thus exacerbating the competition for affordable, desirable homes.

Real estate website Redfin states that the market for existing homes in May set a new record for low supply, speed of sale and competition as eligible buyers gobbled up inventory almost as quickly as it became available. According to their data, there was a 2.7-month supply of homes left in May, less than half the six-month supply deemed a desirable balance between buyers and sellers.

Would-be buyers, meanwhile, are becoming less optimistic about their chances of being able to purchase a home.

In Fannie Mae's Home Purchase Sentiment Index, the percentage of respondents saying that now is a good time to buy a home sank 8 percent below April's figure, to a new record low for the index, at only 27 percent. The NAR's latest Housing Opportunities and Market Experience (HOME) survey, for the second quarter of 2017, finds a majority of potential buyers feel now is a good time to buy a home.

However, sentiment was down somewhat from the first quarter of this year. Notes the report, "Those who are currently renting or living with someone else, those who are under 34 years of age, and those who live in urban areas are less confident that now is a good time to buy," as are those earning under $50,000 a year.

Earlier this month, the Joint Center for Housing Studies at Harvard University released its annual "State of the Nation's Housing Report," which shows the industry moving in a positive direction — with demand, prices and construction returning to prerecession levels — while hampered by extremely tight supplies and precariously tipping away from affordability for many who hope to buy a home in the near future.

A new report from Moody's says some of the largest construction companies are beginning to address these issues, and it's possible regulation and tax policies favored by the current administration in Washington could bring some relief as well. The challenge for the industry, and for housing policy as well, will be to meet increasing demand without straining resources so as to create another unsustainable bubble this decade.