The number of contracts to purchase previously owned U.S. homes jumped in May by the most in more than four years, a sign the residential real estate market is rebounding after a slow start to the year.
The pending home sales index climbed 6.1 percent, the biggest advance since April 2010, after a revised 0.5 percent increase in April, the National Association of Realtors said Monday in Washington. The gain exceeded the most optimistic estimate in a Bloomberg survey of economists, whose median forecast called for a 1.5 percent gain.
Housing demand is benefiting from cheaper borrowing costs, a stronger employment outlook and easier access to credit for some households. At the same time, higher prices and limited income gains are keeping the improvement in the residential real estate from becoming more broad-based.
"Housing is beginning to bounce back," said Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, whose forecast for a 4 percent gain was the highest in the Bloomberg survey. "Mortgage rates have backed down a bit recently. Home prices are still rising, which means fewer people have mortgages that are under water. The longer the housing recovery goes on, the more people will gain confidence to join in."
The gain in May was the biggest since first-time buyers rushed to sign contracts before the expiration of a tax credit four years ago. Estimates in the Bloomberg survey of 37 economists ranged from a decline of 0.5 percent to an advance of 4 percent after a previously reported 0.4 percent April gain.
Another report showed manufacturing cooled in June from a month earlier. The Institute for Supply Management Inc.'s business barometer fell to 62.6 from 65.5 in May. The median forecast called for the gauge to fall to 63. Readings above 50 signal expansion.
The pending home sales index was 103.9 on a seasonally adjusted basis, the highest since September. A reading of 100 corresponds to the average level of contract activity in 2001, or "historically healthy" home-buying traffic, according to the National Association of Realtors.
Pending home sales climbed in all four regions, led by an 8.8 percent gain in the Northeast. Contract signings increased 7.6 percent in the West, 6.3 percent in the Midwest and 4.4 percent in the South.
Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.
"Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable," National Association of Realtors chief economist Lawrence Yun said as the report was released.
Home sales slowly have been emerging from a slump early this year. Purchases of new homes rose in May by the most in 22 years, increasing 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed.
Gains in home prices have started to cool, which will help bring more properties within reach of those prospective buyers with access to credit.
The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported last week.
Home improvement retailers including Lowe's Cos. remain upbeat about the housing recovery.
"We've seen a bit of a downturn in housing turnover, but home prices continue to appreciate," Chief Financial Officer Robert Hull said at a June 24 consumer conference. "As we think about the drivers of our business, both housing and income is constructive."
Information for this article was contributed by Shobhana Chandra and Ainhoa Goyeneche of Bloomberg News.
Business on 07/01/2014