Total existing home sales increased 4.2% to a seasonally adjusted annual rate of 5.18 million in May from 4.97 million in April, NAR said. That's the highest rate since November 2009 and almost 13% above year-ago levels.
The inventory of homes for sale, meanwhile, dipped to a 5.1 month supply, down from 5.2 months in April. That means all the homes would sell in that time frame if no new supply was added and sales continued at May's pace. Realtors consider a 6-month supply to be a balanced market between buyers and sellers.
Total housing inventory at the end of May was up 3.3% to 2.22 million existing homes for sale.
Despite last month's "nice" gain in homes for sale, the supply is unlikely to grow unless home building ramps up by an additional 50%, says Lawrence Yun, NAR chief economist.
Homes are also selling fast. The median time on market for all homes was 41 days in May, down from 46 in April.
Nationwide, 45% of all homes sold in May were on the market for less than a month, NAR says.
Single-family home sales rose 5% in May to a seasonally adjusted annual rate of 4.6 million and are almost 13% above the year ago pace.
Tight supplies of homes for sale has helped drive price gains in many markets. As prices rise, more homeowners are likely to try to sell their homes.
When adjusted for seasonal factors, the inventory has risen for four straight months and is up 7% since January, says Jed Kolko, chief economist for real estate website Trulia.
Separately, Zillow says home values rose again in May, up 0.5% from April.
By Zillow's measure, that puts home values up 5.4% year-over-year in May, the second-highest annual rate of appreciation for any month in the past 12.
The pace of home value appreciation is expected to moderate as more sellers enter the market and builders begin construction on more new homes, Zillow says.
"The housing market will undoubtedly look very different a few years down the road from how it appears now," says Stan Humphries, Zillow economist.
Inventory constraints are beginning to ease in many areas as more homes come on the market, he says. Rising interest rates may also curb demand as home purchases become more expensive to finance.
Mortgage giant Freddie Mac said Thursday that 30-year-fixed rate mortgages averaged 3.93%, down from 3.98% last week.