Pending sales of US existing homes increased 0.9% in May

[NEW YORK] Contracts to purchase previously owned US homes rose in May for a fifth month, indicating recent strength in the real-estate industry will be sustained.

The pending home sales index increased 0.9 per cent after a revised 2.7 per cent advance in the previous month, the National Association of Realtors said Monday in Washington. The median projection in a Bloomberg survey of economists called for the index to climb 1 per cent.

Employment growth, a pickup in incomes and relatively low borrowing costs are helping lure buyers, including those making their first foray into the market. Progress in residential real estate and more construction will further fuel the economy after a weak start to the year.

"Things are looking good on the housing front - we have good job growth and we've seen an increase in household formation in the past half-year," David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, said before the report. "Demand for housing should keep rising. The trend in sales will continue to move up over the next few months." Estimates in the Bloomberg survey of 40 economists forecasting pending home sales ranged from a 2 per cent decline to a 4 per cent increase. The Realtors' group revised the April data from an initially reported 3.4 per cent gain.

Purchase contracts rose 8.3 per cent in the 12 months ended in May, on an unadjusted basis, after a 12.6 per cent gain in April, the NAR report showed.

A reading of 100 in the pending sales gauge corresponds to the average level of contract activity in 2001, or "historically healthy" home-buying traffic, according to the NAR.

Pending sales climbed in two of four regions, led by a 6.3 per cent increase in the Northeast. Purchase contracts rose 2.2 per cent in the West.

"The steady pace of solid job creation seen now for over a year has given the housing market a boost this spring," NAR chief economist Lawrence Yun said in a statement.

Economists consider pending sales a leading indicator because they track new purchase contracts. The Realtor group's existing-home sales data are tabulated when a deal closes, usually a month or two later.

Those re-sales, which make up about 90 per cent of the market, rose 5.1 per cent in May to a 5.35 million annualized rate, the fastest pace since November 2009, NAR data showed last week. The share of first-time buyers matched the highest level since September 2012.

As demand picks up, builders are responding. While May housing starts declined 11.1 per cent to a 1.04 million annualized rate, it 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.

Relatively low borrowing costs are still supporting would- be buyers who can qualify for credit. The average rate for a 30- year fixed mortgage was 4.02 per cent in the week ended June 25, according to data from McLean, Virginia-based Freddie Mac. While that's the second-highest rate this year, it's below the average 4.17 per cent for all of 2014.

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 June 24 conference. "We're seeing solid progress on jobs creation. We're also starting to see some good movement on wage increases."

Payrolls rose by 280,000 in May, the biggest increase in five months, according to the Labour Department. So far this year, job gains have averaged 217,400 a month after 259,670 in 2014. The Labour Department is set to report June figures on July 2.

Some indicators have shown an emergence of stronger pay growth. Private wages, which exclude government workers, rose 2.8 per cent in the first quarter from the same three months in 2014, the fastest since 2008, the Labour Department's April 30 report on employment costs showed.

The agency's monthly employment report showed a more moderate 2.3 per cent gain in average hourly earnings in May from a year earlier. While that was the strongest since August 2013, it's still close to the 2 per cent average since the start of the expansion.

BLOOMBERG