March construction spending, pending home sales rose

WASHINGTON -- Two reports delivered encouraging news about the economy Monday:

The National Association of Realtors said pending home sales rose from February to March as buyers took advantage of deeply discounted prices and low interest rates.

And the government said construction spending rose unexpectedly in March after five straight declines, as strength in nonresidential projects and government building offset a slide in housing.

The Commerce Department says spending increased 0.3% in March, best showing since a similar rise in September. Economists surveyed by Thomson Reuters expected spending to drop 1.5%.

The rebound may be temporary, however, given the problems facing the industry. The worst housing slump in decades and a severe financial crisis have made it hard for builders to get financing.

In the home sales report, the NAR said its seasonally adjusted index of pending sales for previously occupied homes rose 3.2% to 84.6 in March. The index was 1.1% above last year's levels and has risen two straight months after hitting a record low in January.

The index, which started in 2001, tracks signed contracts to buy previously owned homes. Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer for future home sales.

Homebuyers taking advantage of bargain prices, low interest rates and a tax credit for first-time buyers pushed the index up.

"After nearly three years of freefall, housing activity may have found a floor," wrote Paul Dales, U.S. economist with Capital Economics in Toronto.

Hopes have been growing that home sales, while still depressed, may be finally showing signs of life. Sales of newly built homes were flat in March while sales of existing homes edged down slightly.

But it's not all bright news out there.

Home prices are expected to keep falling for at least another year, though at a slowing pace. Tens of thousands of homes are tied up in the foreclosure process and not yet for sale. Plus, mounting job losses may keep many buyers from signing a contract for a home.