Demand for new U.S. homes probably rose in May for the second month as mortgage rates dropped, bolstering the residential real-estate market while other parts of the economy cool, economists said before a report today.

Sales climbed to a 346,000 annual rate, up 0.9 percent from a 343,000 pace in April, according to the median forecast of 56 economists surveyed by Bloomberg News. Data last week showed builders broke ground on more single-family houses last month and industry confidence climbed in June to a five-year high.

Falling borrowing costs and more affordable properties may keep luring buyers, even as a cooling job market and limited access to credit restrain the recovery. In a bid to reduce unemployment, sustain housing and prevent a global slowdown from stalling the expansion, the Federal Reserve last week extended a program to keep long-term interest rates low.

“While fears of an economic slowdown have mounted in recent weeks, the U.S. housing market has shown signs of an accelerated rebound,” Joseph Carson, director of global economic research at AllianceBernstein LP in New York, said in a June 22 note to clients. “Positive trends in housing starts and prices indicate that a budding recovery is under way, which may get further support from new monetary stimulus by the Fed.”

Bloomberg survey estimates for new-home sales, which are counted when contracts are signed, ranged from 327,000 to 360,000. The Commerce Department’s report is due at 10 a.m. in Washington.

Housing Starts

In response to improving demand, builders broke ground on 516,000 single-family houses last month at an annual pace, up 3.2 percent from April and the most this year, the Commerce Department reported last week.

The Washington-based National Association of Home Builders/Wells Fargo sentiment index rose by 1 point this month to 29, the highest since May 2007, another report last week showed.

United Technologies Corp. (UTX) and Lennox International Inc. (LII), makers of heating and air conditioning units, are among companies benefitting from developers’ positive outlook. Lennox, based in Richardson, Texas, had a 40 percent increase in sales to builders in the first quarter. United Technologies, in Hartford, Connecticut, forecasts about 700,000 housing starts this year, Chief Financial Officer Gregory Hayes said.

“The expectation is we’re not going to see a huge recovery in the U.S. residential marketplace, but we should see a steady recovery,” Hayes said at a June 14 conference. “Residential is coming back, but it’s very, very slow.”

Shares Climb

The stabilization in housing has boosted builder shares this year. The Standard & Poor’s Supercomposite Homebuilder Index (S15HOME) has climbed 33 percent so far this year, compared with a 6.2 percent gain for the broader S&P 500.

Residential construction hasn’t contributed to economic growth over the course of an entire year since 2005, when it accounted for 0.4 percentage point of the 3.1 percent increase in gross domestic product. From 2006 through 2009, the homebuilding slump subtracted 0.8 percentage point from growth on average. The declines diminished over the past two years.

Newly constructed houses made up 6.7 percent of the residential market last year, down from a high of 15 percent during the boom of the past decade.

Sales of existing homes declined in May as fewer distressed properties reached the market, the National Association of Realtors reported last week. The decline in transactions involving foreclosures and short sales, where a lender agrees to accept less than the balance of the mortgage, helped push the median price of a previously owned house up 7.9 percent from the same time last year, the biggest 12-month gain since February 2006.

Mortgage Rates

Less competition from existing houses and even lower mortgage rates may keep spurring the market. The average rate on a 30-year fixed loan dropped to 3.66 percent last week, the lowest in data going back to 1972, according to Freddie Mac.

The central bank last week aimed to keep borrowing costs low. Policy makers announced they will expand the Operation Twist program to extend the maturities of assets on its balance sheet. They said they stood ready to take further action to put unemployed Americans back to work. Fed officials also lowered their outlook for growth and employment.

             Bloomberg Survey
===========================================
                          New Home New Home
                             Sales    Sales
                            ,000’s     MOM%
===========================================
Date of Release              06/25    06/25
Observation Period             May      May
-------------------------------------------
Median                         346     0.9%
Average                        346     0.9%
High Forecast                  360     5.0%
Low Forecast                   327    -4.7%
Number of Participants          56       56
Previous                       343     3.3%
-------------------------------------------
4CAST                          337    -1.8%
ABN Amro                       347     1.0%
Action Economics               345     0.6%
Ameriprise Financial           348     1.5%
Analytical Synthesis           351     2.3%
Banca Aletti                   353     2.9%
Barclays                       345     0.6%
BMO Capital Markets            343     0.0%
BNP Paribas                    330    -3.8%
BofA Merrill Lynch             350     2.0%
Briefing.com                   350     2.0%
Capital Economics              345     0.6%
CIBC World Markets             345     0.6%
Citi                           360     5.0%
ClearView Economics            350     2.0%
Comerica                       335    -2.3%
Credit Agricole CIB            351     2.3%
Credit Suisse                  360     5.0%
Danske Bank                    342    -0.3%
Desjardins Group               350     2.0%
Deutsche Bank Securities       345     0.6%
Exane                          345     0.6%
First Trust Advisors           345     0.6%
Helaba                         345     0.6%
HSBC Markets                   349     1.8%
Hugh Johnson Advisors          345     0.6%
IDEAglobal                     340    -0.9%
IHS Global Insight             355     3.5%
Informa Global Markets         335    -2.3%
ING Financial Markets          350     2.0%
Intesa Sanpaulo                350     2.0%
Janney Montgomery Scott        346     0.9%
Jefferies & Co.                340    -0.9%
John Hancock Financial         347     1.0%
Landesbank Berlin              355     3.5%
Landesbank BW                  350     2.0%
Maria Fiorini Ramirez          345     0.6%
MET Capital Advisors           327    -4.7%
Moody’s Analytics              354     3.2%
Morgan Stanley & Co.           350     2.0%
National Bank Financial        350     2.0%
Natixis                        346     0.9%
Nomura Securities              357     4.1%
OSK Group/DMG                  341    -0.6%
Pierpont Securities            355     3.5%
PNC Bank                       335    -2.3%
RBC Capital Markets            335    -2.3%
Scotiabank                     337    -1.8%
SMBC Nikko Securities          345     0.6%
Standard Chartered             335    -2.3%
Stone & McCarthy Research      350     2.0%
TD Securities                  346     0.9%
University of Maryland         345     0.6%
Wells Fargo & Co.              351     2.3%
Westpac Banking Co.            347     1.0%
Wrightson ICAP                 350     2.0%
=========================================

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net