Homes and factories show strong gains

WASHINGTON -- Pending U.S. home sales rose more than expected in July to the highest level in more than two years as first-time buyers rushed to take advantage of a tax credit that expires this fall.

The National Association of Realtors said Tuesday its seasonally adjusted index of sales contracts signed in July for previously occupied homes rose 3.2% to 97.6, highest level since June 2007. It was the sixth straight increase and 12% above the same month last year.

Economists surveyed by Thomson Reuters expected the index would edge up to 96.5.

• Meanwhile, a key manufacturing index said the sector grew in August after shrinking for 18 straight months. The Institute for Supply Management, a trade group of purchasing executives, said its manufacturing index rose to 52.9 in August, from 48.9 in July. It's the first reading above 50, which indicates expansion, since January 2008. It's also the highest since June 2007. Analysts polled by Thomson Reuters expected a reading of 50.5.

• A third report said construction spending edged down slightly in July as weakness in non-residential building and government projects offset the best showing for home building in 10 months. The Commerce Department said that construction spending dipped 0.2% in July, worse than the flat reading that economists had expected. The drop followed a small 0.1% rise in June. The July decline occurred even though construction of homes and apartments rose 2.3% in July. It was the best showing since last September and further evidence that the nation's long housing slump may finally be bottoming out.

Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of how sales completed this month and next will turn out. However, delays in the mortgage approval and appraisal processes have lengthened the time it takes to close a deal in many cases.

The U.S. housing market is rebounding more rapidly than expected, as low prices and the looming expiration on Nov. 30 of a first-time homebuyers tax credit of up to $8,000 have spurred sales. Home prices in most of the country have started to rise from the depths of the housing slump.