Pending sales of previously owned U.S. homes rose in March for a second straight month, while construction spending edged higher, according to reports on Monday that suggested a moderation in the housing slump.
The reports, which boosted U.S. stock prices, were the latest in a series that appeared to support views that the recession, which entered its 17th month in May, was close to finding a bottom.
The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in March, rose 3.2 percent to 84.6 as first-time buyers waded into the market to take advantage of favorable prices and mortgage rates.
A separate report from the Commerce Department showed U.S. construction spending rose 0.3 percent in March, the first increase in six months.
Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut, said the pending home sales report added to evidence that sales have reached a bottom.
That's critical because once sales bottom, it's only a matter of time before you work off excess inventories. That's the key to stabilization in the financial system and the economy at large. We're closer to that than people thought just a few months ago.
U.S. stocks rose on the data and on hopes stress tests of the nation's top banks will not reveal any unexpectedly large capital shortfalls. The blue chip Dow Jones industrial was up more than 2 percent in morning trade. Government bond prices were slightly lower.
The collapse of the U.S. housing market and the resulting credit crisis pushed the economy into deep recession and analysts have watched home sales for signs of an end to the economic downturn.
NAR Chief Economist Lawrence Yun attributed the rise in signed contracts for home purchases to first-time buyers taking advantage of the combination of low prices and mortgage rates, as well as an $8,000 tax credit, which made housing more affordable.
We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around, said Yun.
The NAR's Housing Affordability Index edged down to 166.7 in March from a record 174.4 in February due to higher home prices in March. The index was 30.8 percentage points higher than a year ago.
The index is a broad measure of housing affordability linking the relationship between home prices, mortgage interest rates and family income.
A separate report from the Commerce Department showed that while construction spending rose, private construction slipped 0.1 percent, pulled lower by a 4.2 percent decrease in residential building.
However, public construction, which had tapered off in winter, increased 1.1 percent in March and 1.3 percent in February. Most of the boost came from state and local governments, whose spending rose 1.3 percent in March.
(Reporting by Lucia Mutikani and Lisa Lambert; Editing by Dan Grebler)