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Originally published Thursday, August 28, 2014 at 10:54 AM

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Contracts to buy US homes rise in hopeful sign

More Americans signed contracts to buy homes in July, a sign that buying has improved as mortgage rates have slipped, the number of listings has risen and the rate of price increases has slowed.


AP Economics Writer

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WASHINGTON —

More Americans signed contracts to buy homes in July, a sign that buying has improved as mortgage rates have slipped, the number of listings has risen and the rate of price increases has slowed.

The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index rose 3.3 percent to 105.9 last month. Still, the index remains 2.1 percent below its level a year ago.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, called the increase "positive" but stressed that home buying was unlikely to strengthen significantly

"Sales cannot rise much more before they hit the fundamental problem that the pool of would-be buyers is just not big enough," Shepherdson said.

The pressures that caused home sales to stall last year have started to ease. The average 30-year fixed mortgage rate has dropped to 4.1 percent, a 52-week low. Prices are no longer rising at double-digit annual rates, thereby helping to improve affordability.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

The number of signed contracts in the Northeast climbed 6.2 percent and is ahead of its pace last year. Pending sales also rose in the South and West, though the index for both regions remains below its levels in July 2013. Contracts in the Midwest fell 0.4 percent last month and also lag behind the pace of a year ago.

Modest wage growth, which has barely run ahead of inflation, has hampered home sales. The Realtors forecast that roughly 5 million existing homes will be sold this year, down from 5.1 million in 2013.

But price growth, which had hurt affordability at the end of last year, has moderated in recent months.

The Standard & Poor's/Case-Shiller 20-city home price index rose 8.1 percent in June from 12 months earlier, according to a report this week. Year-over-year price gains at the start of 2014 had averaged more than 13 percent, according to the Case-Shiller index.

And while more homeowners have started to list their properties for sale, the ability of the real estate market to grow is limited.

That's largely due to the consequences of the housing bust that triggered the Great Recession at the end of 2007. Nearly 35 percent of homeowners are still "effectively underwater" on their mortgages: They either have less than 20 percent equity in their homes or they couldn't sell their properties and have enough money left for a down payment on another home, the online real estate firm Zillow said this week.



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