June 9 (Bloomberg) -- The number of Americans signing contracts to buy existing homes unexpectedly rose in April as the first nationwide decline in prices since the 1930s lured buyers back into the market, a private report showed.

The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months, following a 1 percent drop in March, the National Association of Realtors said today in Washington.

The drop in property values may be starting to lure some buyers who are able to qualify for loans, signaling purchases will improve in 2009. Still, stricter lending rules, the recent increase in mortgage rates and continued pressure on prices from mounting foreclosures will probably keep some buyers away for much of the year.

``There are some signs that sales are close to a bottom, although the level of inventories is so high that there is going to be continued pressure on prices and housing starts,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who had the highest forecast in the Bloomberg News survey. ``We'll need to see more than this report to suggest housing is really rebounding.''

Economists projected the index would fall 0.4 percent, according to the median forecast in a Bloomberg News survey of 32 economists. Estimates ranged from a drop of 1.5 percent to a 1 percent gain.

Stocks Rise

Stocks extended gains following the report and Treasury securities dropped. The Standard & Poor's 500 index rose 0.6 percent to 1,368.4 at 10:27 a.m. in New York. The yield on the benchmark 10-year note rose to 4.02 percent from 3.91 percent at the end of the day on June 6.

Pending resales were still down 13 percent from April 2007, today's report showed.

The measure increased 13 percent in the Midwest and 8.3 percent in the West. They rose 4.6 percent in the South and decreased 1.9 percent in the Northeast.

``Bargain hunters entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner occupants,'' Lawrence Yun, the real-estate agents group's chief economist, said in a statement.

Yun also said the drop in consumer confidence and stricter lending rules make the immediate outlook ``unclear.''

The pending resales measure is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

Record Low

The Realtors group will release its May existing home sales report on June 26. Purchases in April dropped to a 4.89 million annual pace, matching the weakest rate since records began. It would take an all-time high of 11.2 months to sell all the houses on the market at the current sales pace.

The lack of demand is rippling through the economy. Sherwin-Williams Co., the largest U.S. paint retailer, slashed its 2008 profit forecast last week because of the decline in the domestic housing market and rising costs for petroleum-derived raw materials.

``The market is deteriorating dramatically,'' its Chief Financial Officer Sean Hennessy said on a June 3 call with analysts and investors. Chief Executive Officer Christopher M. Connor during the call also said demand probably won't improve for the rest of the year.

Other measures have showed sales may continue to decline. The Mortgage Bankers Association's index of applications for loans to purchase homes has fallen 13 percent since the beginning of May, ending the month at the lowest level in five years.

Price Declines

Values were down 3.1 percent in the first quarter compared with the same period last year, the second quarterly decline after 13 years of increases, the Office of Federal Housing Enterprise Oversight said May 22.

``What people are most scared of is looking like a schmuck,'' Toll Brothers Holdings Inc. Chief Executive Officer Robert Toll said at a conference in New York last week. ``What do I want to buy a home for and next year be looking at 10 percent less asset?''

Toll predicted the housing slump may last another two to three years. On June 3, the company reported its third straight quarterly loss.

More Foreclosures

The number of Americans in danger of losing their homes to foreclosure rose to the highest in almost 30 years in the first quarter, the Mortgage Bankers Association said June 5. The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, or loans with one or more payments overdue, grew to 6.35 percent. These were the highest since 1979.

Still, the decline in prices is making homes more affordable. The Realtors group's affordability index stood at 129.8 in April. A reading of 100 indicates a family with the median income could afford a median-priced house at current interest rates.

The collapse of the subprime mortgage market has led the world's biggest banks and brokerages to report more than $386 billion in losses and writedowns.

Banks will probably report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Federal Reserve Vice Chairman Donald Kohn said to the Senate Banking Committee June 5.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn. He also said losses for homebuilders and developers are ``bound to increase further.''

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: June 9, 2008 10:30 EDT