The National Association of Realtors said Thursday that its seasonally adjusted index for pending home sales rose 6.7 per cent to 112.3 last month. That's the highest level since December 2006. Signed contracts have risen 12.1 per cent in the past 12 months.
The increase could reflect an effort by potential buyers to complete deals before mortgage rates rose further. Mortgage rates rose in May and then jumped after Federal Reserve Chairman Ben Bernanke suggested last week the Fed could slow its bond purchases later this year.
The increase points to healthy gains in home sales in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.
"This report should provide comfort as it shows that housing is still holding in," said Jennifer Lee, an economist at BMO Capital Markets.
Still, rising rates could weigh on demand later this year. The average rate on a 30-year mortgage soared this week to 4.46 per cent, the highest in nearly two years, according to a report Thursday by mortgage giant Freddie Mac. But rates are still low by historical standards.
"Despite the rise in mortgage rates and house prices, housing affordability will still be well above its long-term average," said Joseph LaVorgna, an economist at Deutsche Bank.
Sales of previously occupied homes jumped above the 5 million mark in May for the first time in 3 1/2 years, evidence that the housing recovery is accelerating.
Sales last exceeded 5 million in November 2009. During that month and October 2009, a home-buying tax credit briefly inflated the sales pace. Prior to that, sales hadn't been above 5 million since July 2007. That's still below the 5.5 million annual sales that are consistent with a healthy market.
The Realtors' group forecasts that sales will likely total nearly 5.1 million in 2013, which would be the highest in seven years. Other private economists have similar projections.
New home sales also jumped in May. They rose 2.1 per cent to a seasonally adjusted annual rate of 476,000, the fastest pace in five years.Suggest a correction