Pending home sales hit a six-month high in April but falling demand for home loans pointed to ebbing activity in the vital housing market with the expiration of a popular tax credit for buyers.
The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed in April, rose 6 percent to 110.9, the highest level since October and above expectations of a 5 percent gain.
But applications for loans to buy homes dropped last week for the fourth straight week, holding 13-year lows, the Mortgage Bankers Association said.
It's partly attributable to the last-minute rush to take advantage of the homebuyer's tax credit, said David Resler, chief U.S. economist at Nomura Securities in New York. The next month or two, we might get some payback as the homebuyers who were induced to buy early are no longer in the market.
To be eligible for the federal tax credit, prospective home buyers had to sign contracts by the end of April and close by the end of June.
The U.S. housing market, whose crash was at the epicenter of the global financial crisis, is seen as a barometer for the broader economy as it emerges from the worst recession in 70 years. With government help, the housing market has stabilized but foreclosures continue to mount.
Economic health is also a key issue for the Obama administration with congressional elections looming in November and American voters in an anti-incumbent and anti-Washington mood.
HOME DEMAND DEPENDS ON JOBS
Another report showed the number of planned layoffs at U.S. companies was almost unchanged in May from April, when they touched a four-year low as employers become more upbeat about the economic outlook.
The planned layoffs data came just before the government's much-anticipated monthly U.S. payrolls report on Friday that is forecast to show non-farm payrolls rose by 513,000 in May after rising 290,000 in April.
While home sales are expected to slacken with the expiration of the tax credit, analysts believe a combination of an improving jobs market and low mortgage rates will help to prop up the market without further government aid.
U.S. stock indices held gains after the data, while Treasury debt prices were steady at lower levels. The dollar was little changed versus major currencies.
April's rise in pending home sales marked the third straight month of gains in the index, which leads existing home sales by a month or two.
Pending home sales rose 7.1 percent in March. Compared with April 2009, the index was 22.4 percent higher.
Pending home sales are measured at the time of contract signing. Existing home sales, which are counted at contract closing, are likely to rise until next month.
New home sales, though, will start to reverse themselves in the next report. Declines of 3 to 6 percent are probably expected for the next new home sales report, said Cary Leahey, economist at Decision Economics in New York.
But with the labor market recovery gaining momentum, the decline in sales is likely to be temporary.
The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs, said Lawrence Yun, chief economist with the National Association of Realtors.
In May, employers announced 38,810 job cuts in the month, slightly more than the 38,326 in April, according to global outplacement consultancy Challenger, Gray & Christmas.
Announced job cuts have, for all intents and purposes, returned to pre-recession levels, John Challenger, the consultancy's chief executive officer, said in a statement.
(Reporting by Lucia Mutikani, Ciara Linnane and Lynn Adler; Additional reporting by Ellen Freilich; Editing by John O'Callaghan