Pending home sales rose sharply in May, as lower mortgage rates and increased inventory drove market increases, according to a June 30 report from the National Association of Realtors. All four regions of the country saw improvements in pending sales, with the largest gains appearing in the
West and Northeast.

The Pending Home Sales Index, a market indicator based on contract signings, increased 6.1 percent to 103.9 in May from 97.9 in April, but still remains 5.2 percent below the 109.6 reading in May 2013. May's 6.1 percent increase was the largest month-over-month gain since the index added 9.6 percent in April 2010, when first-time homebuyers rushed to sign purchase contracts before a popular tax credit program ended.

"Sales should exceed an annual pace of five million homes in some of the upcoming months behind favorable mortgage rates, more inventory and improved job creation," said NAR chief economist Lawrence Yun, who expects improving home sales in the second half of the year. "However, second-half sales growth won't be enough to compensate for the sluggish first quarter and will likely fall below last year's total."

Despite the positive gains in signed contracts last month, Yun said that affordability and access to credit is still an area of concern for first-time homebuyers, who accounted for only 27 percent of existing-home sales in May, and are typically burdened by student loan debt and lower credit scores.

"The flourishing stock market the last few years has propelled sales in the higher price brackets, while sales for homes under $250,000 are 10 percent behind last year's pace. Meanwhile, apartment rents are expected to rise eight percent cumulatively over the next two years because of tight availability," said Yun. "Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable."

The PHSI jumped 8.8 percent in May to 86.3 in the Northeast, and is now 0.2 percent above a year ago. In the Midwest, the index rose 6.3 percent to 105.4 in May, but is still 6.6 percent below May 2013. Pending home sales advanced 4.4 percent in the South to an index of 117.0 in May, and are 2.9 percent below a year ago. The index in the West rose 7.6 percent in May to 95.4, but remains 11.1 percent below May 2013.

Yun expects existing-homes sales to be down 2.8 percent this year to 4.95 million, compared to 5.1 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6 percent this year and in the range of 4 to 5 percent in 2015.