Homebuyers rushed to take advantage of government incentives and low mortgage rates in April, giving the housing market its biggest boost in five months.
But now that a homebuyer tax credit has expired, any improvement will depend mainly on the lure of historically low mortgage rates.
Some economists say that won't be enough.
"Although mortgage rates have fallen sharply, the combination of high unemployment, heavy indebtedness and tight credit suggest to us that demand will stumble," said Paul Dales, an economist at Capital Economics.
Sales of previously owned homes rose 7.6 percent to a seasonally adjusted annual rate of 5.77 million, the National Association of Realtors said Monday.
The increase in sales sparked a rise in home prices. The median price for a new home rose to $173,100, up 4 percent from a year ago.
Mortgage fell last week to the lowest level for the year and close to 50-year lows as worries over the European debt crisis sent investors rushing into the safety of U.S. credit markets.
But Patrick Newport, an economist at IHS Global Insight, said the key to growth in the housing market won't be low mortgage rates.
"What really will drive sales forward and I mean after July, will be the job market," Newport said. "Having a good mortgage rate helps affordability, but we've had low mortgage rates for a long time now and sales have stayed below 5 million, except when the tax credit was involved."
The tax credit's impact is expected to linger for a couple months. While homeowners had to have a signed sales contract by April 30, buyers have until the end of June to complete their sales. The federal government provided offered first-time buyers a tax credit of up to $8,000. Homeowners looking to upgrade were able to qualify for a credit of up to $6,500.
Sales were up in all parts of the country except the West. The gains were led by a 21.1 percent jump in the Northeast and a 9.9 percent rise in the Midwest. Sales also rose 8.6 percent in the South.
The only region of the country that saw sales decline was the West, where sales dropped by 6.2 percent from March.
The big question facing the housing market is what happens now that the government's tax credits have expired.
Even with the rise in sales, the inventory of unsold homes increased in April to 4.04 million units. That would represent 8.4 months of supply of homes at the April sales pace. While that is down from inventory levels of 11 months at the depths of the housing crash, it is still above more normal inventory levels of around six months supply.
Source: The Associated Press.