WASHINGTON Contracts to buy U.S. previously owned homes fell more than expected in May, dropping to the lowest level in five months as a chronic shortage of houses on the market weighed on activity.

The National Association of Realtors (NAR) said on Thursday that its Pending Home Sales Index, based on signed contracts, dropped 2.7% to 76.5 last month, the lowest level since December. Economists polled by Reuters had forecast pending sales, which become sales after a month or two, falling 0.5%.

Pending home sales tumbled 22.2% in May on a year-on-year basis.

"Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing," said NAR Chief Economist Lawrence Yun. "The lack of housing inventory continues to prevent housing demand from being fully realized."

The housing market, which has taken the biggest hit from the Federal Reserve's fastest monetary policy tightening cycle since the 1980s, appears to have found a floor.

While the tight supply is weighing on the market for previously owned homes, it is boosting construction and sales of new houses. Housing starts soared in May and new home sales increased to a 15-month high. With the inventory of existing homes still well below its pre-pandemic levels, house prices have resumed their upward trend on a monthly basis.

Contract signings jumped 12.9% in the Northeast. They fell 5.3% in the Midwest and dropped 6.1% in the West. Contracts in the densely populated South decreased 4.4%.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)