Rising inventory levels during the final months of the buying season are dramatically boosting sales and prices have continued to increase as the forces driving the housing recovery shift from lack of supply to demand. Sales are soaring despite new evidence that investors are buying fewer properties.

Total existing home sales rose 4.2 percent to a seasonally adjusted annual rate of 5.18 million in May from 4.97 million in April, and is 12.9 percent above the 4.59 million-unit pace in May 2012, according to the National Association of Realtors. Last year some 4.66 million existing homes were sold.

Existing-home sales are at the highest level since November 2009 when the market jumped to 5.44 million as buyers took advantage of tax stimulus. Sales have stayed above year-ago levels for 23 months, while the national median price shows 15 consecutive months of year-over-year increases.

For months the inventory deficit has curtailed sales, but now listings are increasing across the country. The year-over-year deficit in inventory on Realtor.com has been cut in half over the past year, from -20.07 percent in May 2012 to -10.11 percent in May 2013. NAR reported total housing inventory at the end of May rose 3.3 percent to 2.22 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace, down from 5.2 months in April. Listed inventory is 10.1 percent below a year ago, when there was a 6.5-month supply. Inventories are to continuing to increase on a monthly basis as sellers respond to rising prices and declining levels of negative equity.

The same rising prices that are boosting inventories also drove investors out of the market in many parts of the country, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey released today.

The investor share of home purchases tumbled from 22.0 percent in April to 20.2 percent in May based on a three-month moving average. That was the sharpest drop in investor activity recorded in more than three years. According to NAR, Individual investors purchased 18 percent of homes in May; they were 19 percent in April.

Real estate investors have played a major role in the national housing recovery. Investors purchased 24 percent of all existing homes sold in 2012 and 27 percent in 2011, according to NAR.

The decline in investor purchases was not unexpected. Last month a national survey of real estate investors conducted by ORC International for MemphisInvest.com and Premier Property Management Group found that the percentage of investors who said they plan to cut back on purchases in the coming year has risen to 48 percent from 30 percent in September. Only 20 percent of investors said they plan to increase purchases compared to 39 percent ten months ago.

In recent years, investor home purchase activity has been concentrated among damaged foreclosed properties or so-called Real Estate Owned (REO) as well as short sales, since these two property types generally offer discounted pricing and provide more profitable opportunities for renting or flipping.

But the latest HousingPulse numbers reveal investor purchases of both damaged REO and short sales fell significantly in May based on a three-month moving average. Comments from survey respondents indicate that profit margins have been squeezed by rising prices, reducing incentives for investors to buy.

The drop in investor interest in both the damaged REO and short sales sectors has correlated with a drop in the sales-to-list price ratios for these properties, HousingPulse results show. Real estate investors play a major role in the national housing economy. Investors purchased 24 percent of all existing homes sold in 2012, a decline from 27 percent in 2011, according to the National Association of Realtors. The drop in purchasing intentions could result in a further decline in investor market share in 2013.

Both current homeowners and first-time homebuyers increased their participation in the home purchase market between April and May. Current homeowners accounted for 43.8 percent of home purchases last month while first-time homebuyers represented 36.0 percent in May, HousingPulse results showed.

Regionally, NAR reported that existing home sales in the Northeast rose 1.6 percent to an annual rate of 650,000 in May and are 8.3 percent above May 2012. The median price in the Northeast was $269,600, up 12.3 percent from a year ago.

Existing-home sales in the Midwest jumped 8.0 percent in May to a pace of 1.21 million, and are 16.3 percent higher than a year ago. The median price in the Midwest was $159,800, up 8.2 percent from May 2012.

In the South, existing home sales rose 4.0 percent to an annual level of 2.09 million in May and are 16.1 percent above May 2012. The median price in the South was $183,300, which is 15.0 percent above a year ago.

Existing-home sales in the West increased 2.5 percent to a pace of 1.23 million in May and are 7.0 percent above a year ago. With the tightest regional supply, the median price in the West was $276,400, up 19.9 percent from May 2012.