3 Minutes to Read (Adds economist quote, details) 30 JUNE (Reuters) – Contracts to buy previously owned homes in the United States increased by the most in 11 months in May, owing to a drop in mortgage rates and an increase in listings. The uptick could indicate that the dearth of homes for sale, which has stifled sales and pushed residential property prices to new highs, is about to end. The Pending Home Sales Index, based on contracts signed last month, jumped 8.0 percent to 114.7, according to the National Association of Realtors (NAR). Pending home sales were expected to fall by 0.8 percent percent, according to economists polled by Reuters. Because pending home contracts turn into sales one to two months later, they are considered a forward-looking sign of the housing market’s health. “The substantial increase in transactions in May, following April’s decrease, as well as a sharp loss in home affordability, was undoubtedly a surprise,” said Lawrence Yun, NAR’s chief economist. In comparison to a year ago, pending sales were up 13.1%. Because of a shortage of houses on the market, new and existing home sales have dropped dramatically this year, and the limited supply has resulted in soaring home prices. According to NAR data, the inventory of existing houses has climbed to 2.5 months’ supply at recent sales rates, the largest since late October. He also cited lower borrowing costs as a factor in the increased number of contract signings. The interest rate on 30-year fixed rate mortgages increased dramatically in the first quarter after touching historic lows around 3% late last year, but then dipped back slightly in May. According to the Mortgage Bankers’ Association, the average contract interest rate for standard 30-year mortgages was 3.20 percent last week. “With increasing supply, home price rise will gradually reduce, but a broad and sustained price reduction is improbable,” Yun added. “However, if there is a decline in some markets, homebuyers will see the lower property price as a second chance to enter the market after being outbid in earlier multiple-bid market conditions.” Evan Sully contributed reporting. Paul Simao, Aurora Ellis, and Dan Burns edited the piece./nRead More