Also weighing on home prices are rising mortgage rates. May's existing home sales report from the Realtors represents closed sales, so contracts and interest rates would have been signed and locked in March or April, before rates began to rise.
Based on the change in mortgage rates from early May to today, the average buyer would have to pay 13 percent more in monthly payments, including taxes and insurance, according to Mark Hanson, a California-based analyst. They also have to earn 10 percent more in income to qualify for a loan based on a typical qualifying debt-to-income ratio of 45 percent.
"These are huge moves especially considering—when purchasing a house using a mortgage—most people buy based on 'monthly payment and the maximum allowable debt-to-income ratio.' This means first-timer share will fall even further. They are already at a multiyear low even with record-low rates," said Hanson.
(Read More: As Prices Rise, Banks Repossess More Homes)
First-time homebuyer participation was at just 29 percent, according to the Realtors, a five-year low. Without these buyers, as investors pull back and prices rise, home sales will likely lose steam. June's report on pending home sales, or signed contracts in May, will tell just how much rising rates are impacting sales. That report will be released Thursday, June 27.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.
Questions? Comments? RealtyCheck@cnbc.com