WASHINGTON—Sales of previously occupied homes rose modestly from April to May, the third monthly increase this year, but signs of a housing recovery are fragile at best.

The National Association of Realtors said Tuesday that home sales rose 2.4 percent last month to a seasonally adjusted annual rate of 4.77 million, from a downwardly revised pace of 4.66 million in April.

About one out of every three homes sold was a foreclosure or distressed sale. That helped drag down the median price to $173,000—16.8 percent below a year ago. Falling prices coupled with new rules for property appraisers have caused many transactions to fall apart or be delayed.

“We have just been flooded with e-mails, telephone calls on the appraisal problems,” said Lawrence Yun, the Realtors’ chief economist.

The sales results missed economists’ expectations, and stock markets headed lower on the news. Home sales had been expected to rise to an annual pace of 4.81 million units, according to Thomson Reuters.

One bright spot, however, was that the number of unsold homes on the market at the end of May fell 3.5 percent to nearly 3.8 million. That’s a 9.6 month supply at the current sales pace.

That drop was “the best news in the report,” said Joseph LaVorgna, Deutsche Bank’s chief economist.

Recent article in the Denver Post on 5/27/2009:

The Denver area fared the best among 20 U.S. cities reporting sharp drops in home prices, according to data released Tuesday.

The Standard & Poor’s/Case-Shiller home-price index for 20 major cities dropped 18.7 percent in March, compared with March 2008.

Denver reported a 5.5 percent decline, better than Dallas and Boston, which were down 5.6 percent and 8 percent, respectively.

“I believe that we have seen the bottom here in Denver,” said Jim Smith, broker/owner of Golden Real Estate Inc. in Golden. “That’s largely because we had less of a bubble compared to more than half the other cities in the study.”

Economist Jeff Thredgold of Vectra Bank Colorado said he expects housing prices to stabilize by the end of the year.

“There’s still additional pain in the housing sector, but the worst is behind us,” he said. “Housing sales and prices are beginning to move toward stabilization.

“It’s one more sign that the economy will be on the mend moving toward positive growth — not strong growth — by fourth quarter.”

Rachel Hultin, a broker with Urban Niche Realty, noted that Denver’s index number improved 0.1 percent from February to March, the first increase in the index since July 2008.

While it’s still down compared with March 2008, Hultin said it’s more important to look to the future than the past.

“What we need to be looking at is not where we were relative to other times in the past, but the direction we’re going now,” she said. “It’s hard to know at what point we’re going to get back to where we were a year or two years ago.”

Nationally, the 20-city index declined 2.2 percent between February and March.

The worst-performing metropolitan areas continue to be those from the Sunbelt:

• Phoenix was down 36 percent.

• Las Vegas, 31.2 percent.

• San Francisco, 30.1 percent.

Hultin said that first-time homebuyers are driving the market in Denver.

“The $350,000 and under market is on fire,” she said. “There are multiple offers on good properties.”

She also noted that cash investors are gobbling homes priced from $120,000 to $125,000.

“There is good inventory coming on, and ready, able and willing buyers are jumping on things,” she said.

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