Economists say the second unexpected rebound in three months in the U.S. pending home sales index is likely due to sales of foreclosed homes. The June report from the National Association of Realtors (NAR) defied expectations for a 1.0% decline and rebounded 5.3% in June, following the 4.9% loss of sales in May.

The bounce is better than the most optimistic forecasts beforehand.

"This is promising news for July/August existing home sales as the pending sales figures become an existing home sale a month or two down the road (assuming they're not cancelled)," wrote Jennifer Lee, economist at BMO Capital Markets.

Pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.

Lee said the gains likely represent sales of homes in foreclosure, which economists also believe were responsible for April's gain. She pointed to a USA Today story that said home sales were rebounding in Las Vegas, 60% of which were foreclosed properties.

Millan Mulraine, economics strategist at TD Securities, added, "Despite the unexpected surge in pending home sales in June, with most other housing-related indicators pointing downward, there is little to suggest an imminent abatement in the U.S. housing market correction."

The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.

On the plus side, each of the four regions saw improvement in the month as sales in the Midwest rose 1.3%, the South rose 9.3%, the West advanced 4.6% and the Northeast posted a 3.4% gain.

However, Lee said "the underlying problem remains," noting that inventories of new and existing homes stand at 4.33 million homes, representing 11 months of overhang at the current pace of sales for existing homes and 10 months for new properties.

HFE chief U.S. economist Ian Shepherdson added, "We doubt sales of non-foreclosed homes are rising, given the recent rise in mortgage rates and continued price declines. Still, anything which reduces inventory, whether of foreclosed homes or not, is a very welcome development."

Lawrence Yun, chief economist at the NAR, projected home prices would rise between 3% and 6% in 2009, as buyers entering the hardest-hit markets are putting a floor on prices.

"Builders need to further cut production to help trim inventory. However, new home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009," Yun said.

By Patrick McGee and edited by Nancy Girgis