The market for existing-home sales underperformed its potential by 3.8% because of the inventory shortage, according to First American Financial Corp.

There could have been an additional 218,000 sales on a seasonally adjusted annualized rate during the month if the demand had been able to meet the supply, the First American Potential Home Sales Index determined.

Potential existing-home sales for May increased to a seasonally adjusted annualized rate of 5.72 million, a 1.8% increase from April.

"The low inventory of homes for sale is preventing the housing market from reaching its potential and pressuring prices higher. Increasing shortages of homes for sale is a growing problem for potential homebuyers, especially potential first-time homebuyers today, as it causes affordability to decline," said First American Chief Economist Mark Fleming in a press release.

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