RTTNews - Pending home sales increased for the fourth consecutive month in May, according to a report released by the National Association of Realtors on Wednesday, with very favorable housing affordability and a first-time buyer tax credit contributing to the continued increase.

NAR said its pending home sales index rose 0.1 percent to 90.7 in May from an upwardly revised reading of 90.6 in April. Economists had been expecting the index to come in unchanged compared to the 90.3 originally reported for the previous month.

The modest increase in pending home sales in May follows a more substantial 7.1 percent increase in April as well as a 3.2 percent increase in March and a 2.0 percent increase in February.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

However, Lawrence Yun, NAR chief economist, warned that there could be delays in the number of contracts that go to closing.

Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions, Yun said.

Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards, he added. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.

Increases in pending home sales in the Northeast and West contributed to the modest monthly increase, with pending sales in the Northeast rising 3.1 percent and pending sales in the West increasing by 2.2 percent.

The growth was partly offset by decreases in pending home sales in the Midwest and South, where pending sales fell by 1.3 percent and 1.7 percent, respectively.

While NAR also said its housing affordability index fell to 171.6 in May from an upwardly revised 178.8 in April, the index remains at historic highs. The April reading was the highest on record dating back to 1970.

Under these conditions the typical family would devote only 14.6 percent of gross income to mortgage principal and interest, which is one of the lowest percentages on record, Yun said.

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