U.S. existing home sales unexpectedly rose in October as low interest rates for mortgages and rising rents led more homebuyers into the market, the National Association of Realtors said on Monday.

Sales climbed 1.4 percent to an annual rate of 4.97 million units from September's revised rate of 4.90 million, the NAR said. Forecasters in a Reuters poll had expected the annual rate to fall to 4.8 million.

Despite the modest increase in sales, the median sales price for existing homes was 4.7 percent lower in October than it was a year earlier.

Falling prices could hamper the housing market further by making buyers see homes as a bad investment. Existing homes are selling at roughly the rate they did in the late 1990s.

Also tempering the outlook for the housing market, the share of contract failures rose to 33 percent in October from 18 percent in September.

Contract failures happen when banks reject mortgage applications or when appraisals come in below a sale's negotiated price.

The U.S. economy has made strides since the summer thanks to strong factory output and improved consumer spending.

But falling home prices and tighter credit have been the bane of the recovery, which has progressed with fits and starts since the 2007-2009 recession.

Without a steady supply of credit and at least stable prices, a turnaround in the housing sector could still be some time away, economists said.

The recent trend of sales moving broadly sideways remains in place, Barclays Capital analyst Peter Newland said in a note to clients.

NAR chief economist Lawrence Yun said the increase in sales comes amid several improving factors that generally lead to higher home sales such as job creation, rising rents and high affordability conditions.

The U.S. Federal Reserve has held short-term interest rates at nearly zero since 2008 and has expanded its balance sheet in a bid to get credit to businesses and households.

That has helped bring mortgage rates to near-record lows.

The problem is that even with low rates, many would-be borrowers still cannot get a loan.

With lenders increasingly requiring a credit score of 700 and a deposit of 20 percent to grant a conventional mortgage, ... a house price recovery is still a few years away, said Paul Diggle, an economist at Capital Economics in London.

(Reporting by Jason Lange; Editing by Chizu Nomiyama and Andrew Hay)

(jason.lange@thomsonreuters.com; +1 202 310 5487; Reuters Messaging: jason.lange.reuters.com@reuters.net))