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US pending home sales unexpectedly fall in June

Paul J. Richards | AFP | Getty Images

Contracts to buy previously owned U.S. homes unexpectedly fell in June, but the data did little to change perceptions the housing sector was gradually recovering after slumping in late 2013.

Another report on Monday showed services sector activity held at a 4-1/2 year-high in July, a sign of economic momentum early in the third quarter.

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The National Association of Realtors (NAR) said its Pending Home Sales Index, based on contracts signed last month, fell 1.1 percent to 102.7. The decline followed three straight months of increases.

Economists, who had expected contracts to rise 0.5 percent last month, were not fazed by the drop.

"The June pullback could be seen largely as a correction in a broadly improving trend, with housing data remaining somewhat choppy as the sector gradually continues to recover," said Gennadiy Goldberg, an economist at TD Securities in New York.

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Pending home sales, which lead sales by a month or two, increased 6.0 percent in May. They were down 7.3 percent compared to June of last year. On a regional basis, contracts fell in the Northeast and the South, but rose in the West and the Midwest.

U.S. stocks fell on the report, with the PHLX housing sector index declining 1.2 percent. Shares in the nation's largest home builder, D.R. Horton, shed 1.5 percent.

Housing has been making gains after hitting a soft patch last summer following a run-up in mortgage rates. Existing home sales hit an eight-month high in June.

Mortgage rates have declined, with the 30-year fixed rate at 4.16 percent in June compared to a peak of 4.49 percent last September. The recovery, however, continues to be uneven, with new home sales having plummeted 8.1 percent last month.

The sector has been hampered by higher interest rates and a persistent shortage of properties for sale, which is putting upward pressure on prices and sidelining many first-time buyers.

Improvement seen

"The lack of income growth with potential first-time buyers is problematic," said Ryan Sweet, senior economist at Moody's Analytics in West Chester, Pennsylvania. "But this should take a turn for the better next year with faster wage growth and looser credits. If housing doesn't reaccelerate, the economy won't grow faster."

By Reuters

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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