U.S. 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 due to the expiration of a popular tax credit for buyers.
Still, analysts believe any slowdown in home sales will be temporary, citing a broadening economic recovery, low mortgage rates and strengthening labor market. Data on Wednesday also showed planned layoffs at U.S. companies drifting back to pre-recession levels.
We have probably set ourselves up for a lower pace of sales in late summer and fall. Fortunately, the very low mortgage rates, absent a tax credit, continue to make housing quite affordable, said Craig Thomas, a senior economist at PNC Financial Services in Pittsburgh.
The National Association of Realtors' Pending Home Sales Index, based on contracts signed in April, increased 6 percent to 110.9 -- the highest level since October and above expectations of a 5 percent rise. It was the third month of gains.
But applications for loans to buy homes dropped last week for the fourth straight week, holding 13-year lows, the Mortgage Bankers Association said.
The surge in pending home sales, which lead sales of existing home sales by a month or two, reflected a last minute rush by prospective homeowners to sign contracts before April 30 to qualify for a government homebuyer tax credit.
They have to close the contracts 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.
While the housing market has stabilized thanks to government support, a wave of foreclosure properties has slowed the pace of recovery.
Excellent affordability and the stabilization in payrolls should facilitate a gentle recovery once the plunge following the end of the tax credit is over, said Ian Shepherdson, chief U.S. economist at HFE in Valhalla, New York.
Another report showed the number of layoffs announced at U.S. companies almost unchanged in May from April, when they touched a four-year low as employers became 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.
Stocks on Wall Street rose on the data and a combination of bargain hunting after Tuesday's sell-off. U.S. Treasury debt prices fell, while the dollar rose to a two-week high versus the yen following the resignation of the Japanese prime minister.
Although the economy has now grown for three straight quarters and payrolls have expanded for four months, the effects are yet to filter through to ordinary Americans.
This is a key issue for the Obama administration with congressional elections looming in November and American voters in an anti-incumbent and anti-Washington mood.
President Barack Obama said on Wednesday, he expected to see robust job growth in Friday's employment report, adding that the economy was getting stronger by the day.
But that doesn't mean the recession is by any means over for the millions Americans who are still looking for a job. There is not going to be a real recovery until people can feel it in their own lives, Obama said in Pittsburgh.
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, said John Challenger, chief executive officer of Challenger, Gray & Christmas.
What makes the low job-cut totals we have seen this spring particularly remarkable is that we still have not reached what is the slowest downsizing period of the year, which typically occurs during the summer months.
The improving labor market is boosting sales of big ticket items like motor vehicles.
Ford Motor Co said U.S. sales rose 22 percent in May from a year earlier and increased its second-quarter North American production plan by 15,000 vehicles.
(Additonal reporting by Ciara Linnane and Lynn Adler; Editing by Andrew Hay)