US home prices fell in May at the largest annual rate in more than a decade, according to a National Association of Realtors report released Thursday. The median existing home price was $396,100 last month, down 3.1% from a year ago, marking the largest year-over-year price reduction since December 2011. Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — rose 0.2% from April to May. Annually, sales were down 20.4% from a year ago, and the seasonally adjusted annualized sales pace dropped from 5.4 million units a year ago to 4.3 million in May. Mortgage rates remain volatile — so far this year, average rates have ranged from 6.09% to 6.79%, but were fairly steady in April when some of the homes closed in May would have gone under contract. “Mortgage rates heavily influence the direction of home sales,” said Lawrence Yun, NAR chief economist. “Relatively steady rates have led to several consecutive months of consistent home sales.” There are marked regional variations in prices, however. From last year, prices dropped most in the West (down 5.7%), followed by the South (down 2.7%). But prices were still climbing from last year in the Northeast (up 2.5%) and the Midwest (up 1.1%). Nearly one-third of the homes sold in May sold for above list price, Yun said. “That is due simply to lack of inventory,” he noted. Total housing inventory at the end of May was 1.08 million units, which is down 6.1% from a year ago, according to the NAR. Prior to the pandemic, there were nearly twice as many homes on the market, Yun said. Unsold inventory sits at a three-month supply at the current sales pace, up from 2.9 months in April and 2.6 months in May 2022. While existing home sales are stifled by low inventory, home building has surged (climbing 21.7% from April), which has resulted in new home sales activity reaching pre-pandemic levels, Yun said. Affordability remains a challenge amid low inventory A scarcity of newly listed homes left buyers wanting more during the couple of months prior to May when buyers were entering into contracts, said Danielle Hale, chief economist for Realtor.com. And a couple of data points worked in favor of those who closed in May. “Mortgage rates in April were relatively steady, and the median sale price continued to decline modestly, giving buyers time to shop without fear of having to reset their budgets while on the hunt.” The pace of home sales continues to run above the low of a seasonally adjusted annualized rate of 4 million units reached in January, she said, yet sales still lag behind figures from a year ago by a considerable amount. But affordability challenges remained amid super low inventory of homes to buy. Nearly 80% of home shoppers surveyed this spring thought it at least somewhat likely that they would be priced out of the housing market if home prices and rates continue to rise, according to Realtor.com. “With fewer homeowners poised to become sellers in 2023, buyers have a tough road ahead,” said Hale. A revised outlook for the rest of the year from Realtor.com forecasts some positives, including a gradual decline in mortgage rates beginning midyear and a continued softness in home prices that will start to stabilize high housing costs. “Home sales are expected to tally roughly 4.2 million in 2023, their lowest annual total since 2012,” said Hale. — CNN’s Anna Bahney contributed to this report.