WASHINGTON--The number of contracts signed to buy previously owned homes slipped in June, a sign the housing recovery remains choppy despite a retreat in interest rates.

An index of pending home sales, reflecting purchases under contract but not yet closed, fell 1.1% to a reading of 102.7 in June from May, ending three months of gains, the National Association of Realtors said Monday. The above-100 reading indicates market activity was still "average," if not robust, the trade group said.

Economists surveyed by The Wall Street Journal had forecast a 0.5% rise in June sales.

Compared to a year ago, pending-home sales were down 7.3% last month. That suggests many Americans remain unwilling or unable to enter the market despite historically low borrowing costs and a pickup in job creation. Lenders are still imposing strict lending standards, and home prices have risen sharply over the past two years. Meanwhile, Americans' incomes are growing tepidly.

Lawrence Yun, NAR's chief economist, said sales conditions have improved since the winter as price gains have eased and more homes have come on the market. "However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates," Mr. Yun said in a statement.

Pending home sales offers a particularly fresh look at the market because it measures contract signings, which occur weeks or even months before sales become final.

Other recent reports have sent mixed signals on the direction of the housing market.

The NAR's closely watched barometer of existing-home sales--which measure sales after contracts close--climbed last month to the highest level since October, the trade group said last week. Those sales, which reflect roughly 90% of the market, have risen for three straight months but remain below the year-ago level.

But sales of newly built homes fell 8.1% in June from the prior month, the Commerce Department said last week.

The housing market had been a catalyst for the broader U.S. economy starting in 2012, but cooled last year after mortgage rates started to rise. Rates this year have fallen, and the market has shown some progress in recent months. But it has yet to regain its earlier momentum, despite the onset of the spring selling season.

Monday's report showed pending sales in June fell 2.9% in the Northeast region, rose 1.1% in the Midwest, fell 2.4% in the South and were mostly flat in the West.

Interest rates could influence the direction of the market. The average rate on a 30-year mortgage has hovered slightly above 4% since the spring and stood at 4.13% this week, according to Freddie Mac. That's down from roughly 4.5% at the start of 2014.

But rates are expected to rise as the economy improves, and the Federal Reserve withdraws its support for the economy. The Fed has signaled it will end a bond buying program in October and likely raise short-term interest rates some time in 2015. The Fed has kept rates near zero throughout the recovery to stimulate spending, hiring and investment.

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(END) Dow Jones Newswires

July 28, 2014 10:35 ET (14:35 GMT)

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