Contracts to buy homes rose sharply in May

The number of people who signed contracts to buy homes rose sharply in May. But the influx of spring buyers wasn't enough to signal a rebound in the struggling housing market.

The National Association of Realtors said Wednesday that its index of sales agreements for previously occupied homes rose 8.2 percent last month, to a reading of 88.8. The increase followed April's seven-month low of 82.1.

A reading of 100 is considered healthy by economists. The last time the index reached that level was in April 2010, the final month when buyers could qualify for a federal tax credit. Signings are now 17 percent above June's reading of 75.9, the lowest figure since the housing market went bust nearly four years ago.

Contract signings are typically a reliable indicator of where the housing market is headed. That's because there's usually a one- to two-month lag between a sales contract and a completed deal.

But the Realtors group says a growing number of buyers have cancelled contracts ahead of closings after appraisals showed the homes were worth less than they bid. A sale isn't final until a mortgage is closed.

Homes are now the most affordable they've been in years. But bargain prices and super-low mortgage rates have done little to boost sales. Economists say it could be several years before the nation's housing market recovers.

Mixed reports on the struggling housing market — an increase in contract signings, a rise in home prices, slumping sales of re-sold homes and huge numbers of foreclosures in waiting — have left many economists puzzled. But one thing is clear: the housing market won't see a significant recovery this year.

"The persistent weakness in the housing market is frustrating, and we have noticed a growing tendency of many observers to jump on any bit of good news, or even not so bad news, as a reason to declare we are near a bottom," said Mark Vitner, senior U.S. economist at Wells Fargo. "We wish this were true."

Pierre Ellis, senior managing director of Decision Economics, said the housing market is in such a state of flux that "the absence of bad news about the economy amounts to good news nowadays."

Sales of previously occupied homes sank in May to a seasonally adjusted annual rate of 4.81 million homes. That's far below the 6 million sales per year that economists say is typical in healthier times. And it's not much better than the 4.91 million homes sold last year, the worst showing in 13 years.

Meanwhile, contract signings in May increased in every region of the country: It rose 12.9 percent in the West, 10.5 percent in the Midwest, 7.3 percent in the Northeast and 4.1 percent in the South.

The trade group said Wednesday's report "implies that home values in many localities are or will soon be stabilizing."

Still, high unemployment, hard-to-get loans and a lingering fear that home prices will just keep falling are keeping many Americans from buying homes. And waves of foreclosures could soon hit the housing market soon as more Americans default on their mortgages.

Nearly 2.2 million homes are in foreclosure and another 1.9 million homes are more than 90 days past due on their mortgages, according to LPS Applied Analytics. But many foreclosures are being delayed as federal regulators, state attorneys general and banks work out the details of a massive settlement over charges they unfairly pushed people out of their homes during the worst of the housing crisis.

Prices rose in 13 of the 20 cities tracked by the Standard & Poor's/Case-Shiller home-price index, according to the April report released Tuesday. The increase in April was the first rise since July.

But the positive data came with a notable caveat: The figures weren't adjusted for seasonal factors, such as the buying that normally picks up in spring. Once the numbers are adjusted, prices actually fell in April.