updated 7/1/2009 11:33:47 AM ET 2009-07-01T15:33:47

Pending home sales rose in May for the fourth straight month, spurred by low prices and a first-time homebuyers tax credit, fresh evidence that the housing sector may be recovering.

The National Association of Realtors said Wednesday that its seasonally adjusted index of pending sales increased by 0.1 percent in May to 90.7. Analysts expected no change, according to Thomson Reuters.

While the increase was small, it followed a 7.1 percent jump in the index in April.

"The pronounced increase in April and the fact that May sustained this rise does indicate that actual existing home sales are poised to rise in the coming month or two," said Joshua Shapiro, chief U.S. economist for economic forecasting firm MFR Inc., in a note to clients.

The index, which tracks signed contracts to purchase previously occupied homes, is considered a barometer for future home sales. Typically there is a one- to two- month lag between a sales contract and a completed deal.

But construction spending was still limping along. The Commerce Department said Wednesday that construction spending dropped 0.9 percent in May, nearly double the 0.5 percent decline that economists expected. Adding to the signs of weakness, activity in the past two months was revised lower.

The pending home sales index is now 6.7 percent higher than in May 2008, when it was 85. The last time it increased for four straight months was in October 2004, the NAR said.

Other recent housing indicators have been mixed. The Realtors said last week that completed home sales rose 2.4 percent from April to May, the third month-to-month increase this year.

But new home sales dipped 0.6 percent in May.

Separately, the volume of mortgage applications to purchase a home is effectively flat over the past four weeks, the Mortgage Bankers Association said Tuesday.

Still, low home prices and an $8,000 first-time homebuyers' tax credit, included in the Obama administration's stimulus package, are spurring greater interest among home buyers, the Realtors said.

On a regional basis, the pending home sales index rose 3.1 percent to 80.9 in the Northeast while also increasing 2.2 percent to 96.9 in the West. The index dropped 1.3 percent to 89.2 in the Midwest and fell 1.7 percent to 92.6 in the South.

Meanwhile, construction rose 0.6 percent in April, down from the 0.8 percent increase originally reported. A March increase of 0.4 percent was replaced with a decline of the same amount. That left the April gain as the only increase in the past eight months.

For May, the only strength came in nonresidential activity. Residential construction dropped sharply, and spending on federal, state and local projects also declined.

Residential building fell 3.4 percent after a flat reading the month before. Spending on private home building dropped 33.9 percent from a year ago amid the steepest slump in housing in decades.

Nonresidential construction rose 0.5 percent with spending on transportation, power projects and manufacturing all growing.

A collapse in the housing market and the worst financial crisis in seven decades have hurt construction firms and helped push the country into the longest recession since World War II. Builders slashed spending on residential projects at the steepest pace in the first three months of this year since the spring of 1980.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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