Index up for May housing contracts

WASHINGTON -- More Americans signed contracts to purchase homes in May, as pending sales climbed to their highest level in more than nine years.

The National Association of Realtors said Monday that its seasonally adjusted pending-home-sales index rose 0.9 percent to 112.6 last month. The index has increased 10.4 percent over the past 12 months, putting it just below the April 2006 level -- which was more than a year before the housing bust triggered a recession.

"The housing data all seem to be generally pointing in the upward direction," said Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. "The labor market is going to help it a lot."

Steady job growth coupled with low but rising mortgage rates have created greater urgency to buy homes. The gains reflect not only a stronger economy but also the pressures to purchase a house before both prices and the cost of borrowing become potentially unaffordable.

"The May pending-sales index points to either a small gain in actual sales in June or at least a maintenance of the stronger pace reported for May," said Joshua Shapiro, chief U.S. economist at the consultancy MFR.

Completed sales of existing homes jumped 5.1 percent last month to a seasonally adjusted annual rate of 5.35 million, the Realtors association said last week. Median home prices climbed 7.9 percent over the past 12 months to $228,700, about $1,700 shy of the July 2006 peak.

The recent gains are not evenly spread.

The number of signed contracts increased in the higher-priced Northeast and West markets last month, while dipping in the Midwest and South.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Employers have added 3.1 million jobs over the past 12 months, as the six-year recovery is finally generating the momentum to sustain job growth at a pace that is increasing home sales.

Relatively low mortgage rates have aided the real estate market. But those same rates have increased in recent weeks, potentially causing more would-be buyers to close sales before higher rates hurt their ability to purchase a home.

Average rates for a 30-year fixed-rate mortgage were 4.02 percent last week, up slightly from 4 percent in the prior week, according mortgage giant Freddie Mac, the Federal Home Loan Mortgage Corp. The average has risen from a 52-week low of 3.59 percent.

Some economists say that the job gains should be adequate to overcome the drag from higher rates.

"We think the housing market can cope with slightly higher mortgage rates, taking home sales to new post-crash highs over the next few months," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

As demand picks up, builders are responding. While May housing starts declined 11.1 percent to a 1.04 million annualized rate, they followed a revised 1.17 million pace in April and capped the best back-to-back readings since late 2007, according to Commerce Department figures. Permits for future projects rose to the highest level in almost eight years.

Sustained job gains and signs of a pickup in wage growth are helping to keep homebuilders and home-improvement retailers upbeat about business prospects.

"Our industry is driven by both income and housing," Robert Hull, chief financial officer at home-improvement retailer Lowe's Cos., said at a conference last week. "We're seeing solid progress on jobs creation. We're also starting to see some good movement on wage increases."

Information for this article was contributed by Josh Boak of The Associated Press and by Michelle Jamrisko, Shobhana Chandra and Jordan Yadoo of Bloomberg News.

Business on 06/30/2015

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