WASHINGTON – “Modest near-term movement is expected in existing-home sales, with a recovery in sales seen during the second half of the year,” the National Association of Realtors said today.

The NAR’s Pending Home Sales Index – considered a leading indicator for the housing market because it reflects just-signed contracts, which may take several months to close – fell to 84.7 points in May. That represented a decline of 4.7 percent from April’s upwardly revised reading of 88.9 percent, and a 14.0-percent decline from its year-ago reading of 98.5 points.

The NAR had expected some pullback after April’s sharp rise, according to Lawrence Yun, the trade group’s chief economist. “The overall decline in contract signings suggests we are not out of the woods by any means,” he wrote in today’s report. “The housing stimulus bill that is still being considered in the [U.S.] Senate is critical to assure a healthy recovery in the housing market, jobs and the economy.”

Analysts had expected the index would fall 3.0 percent in May – after rising 6.3 percent the month before to an original April reading of 88.2 points (READ MORE) – based on the median estimate from a Bloomberg News survey of 36 economists. (Their May estimates ranged from a decline of 6 percent to an increase of 0.2 percent.)

In the Northeast, the index fell to 77.0 points, a decline of 2.9 percent from its April level and 16.4 percent from May 2007. Pending home sales fell 7.1 percent in the South, 6.0 percent in the Midwest and 1.3 percent in the West. Year-over-year declines also were seen in every region.

“The speed at which home prices have declined in a few select markets is unprecedented, but the large price declines in those areas have enticed bargain hunters back into the market,” Yun said. “Interestingly, there have been reports of multiple bidding after the large price cuts, so it is possible that most of the price declines have already occurred in those markets.”

“Home buyers are getting a great deal right now,” added NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “Although inflationary expectations appear to be under control for the time being, sharper consumer price gains could lead to notably higher mortgage interest rates in 2009.”

The group said its housing affordability index “is improving this year and is likely to rise 15 percentage points to 127.0 for all of 2008.” But the average contract rate on a 30-year fixed-rate mortgage is now expected to reach 6.5 percent by year’s end, and hover at that level for most of next year, the NAR said.

The forecast is less bright for housing construction: “In light of high inventory conditions, rising commodity prices and construction costs will curtail new home construction deep into 2009,” Yun said.

The National Association of Realtors is the nation’s largest trade association, with more than 1.3 million members in all aspects of residential and commercial real estate. Additional information is available at www.realtor.org.