“What has been holding back sales is the fact that nobody wants to sell at the bottom,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “The rise in inventory indicates that sellers are confident in the persistency of the price increases.”

Price gains have been accelerated by investors flipping houses and institutional purchasers such as Blackstone Group LP building businesses of acquiring single-family homes to rent. Many of those buyers are pulling back in the cities with the fastest price growth, said Sam Khater, senior economist for CoreLogic. In most of those areas, prices are outpacing gains in buyer incomes, he said.

California Prices

In California, which accounts for about 10 percent of U.S. home sales, buyers now need a minimum income of $89,170 to purchase a median priced, single-family home and have to earn almost twice as much to buy a house in San Francisco, according to the California Association of Realtors. The median price of an existing home in the state climbed to $433,940 in the third quarter from $339,930 a year earlier.

Fitch Ratings said last week that many of California’s coastal cities are more than 20 percent overvalued. The calculation was based on the long-term relationship between home prices and factors including incomes, borrowing costs, rental rates and population growth.

“We don’t really see growth in the demand drivers to be adequate to support this level of price increases,” Stefan Hilts, a director at New York-based Fitch, said in a telephone interview. “Twenty percent gains, in an economy that is still not better than it was pre-crisis, are not sustainable.”

‘Fragile’ Recovery

California markets where homes are in the shortest supply also account for many of the country’s biggest percentage increases in listings, according to Realtor.com, a listings site operated by Move Inc. Inventories in September jumped 48 percent from a year earlier in the Riverside area, 25 percent in Los Angeles and 14 percent in Orange County, Realtor.com data show.

“The recovery is very fragile,” Khater said. “The reason why supply is going up is partially the softening of demand in the hardest-hit areas.”

Some California sellers may be listing homes because they’re concerned that appreciation will slow, said Selma Hepp, a senior economist for the California Association of Realtors. The jump in mortgage rates significantly changed what buyers could afford because the state is a high-cost market, she said.