Economists polled ahead of the report had been expecting to see a 2.8 percent decrease in the National Association of Realtors index after a 7.1 percent surge in April, which previously had been reported as a 6.3 percent gain.

"The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, chief economist at the real estate trade group.

Compared to a year ago, pending sales, which are based on contracts signed in May and seen as a key barometer of future home sales activity, were down 14 percent.

Analysts said things are not likely to improve until next year.

"You are going to see this trend for a while," said Bob Moulton of American Mortgage Group. "People are nervous about their jobs, they are nervous about getting approved and they are nervous about paying too much for a house."

According to the real estate trade group, however, sales activity is widely varied regionally.

"Some markets have seen a doubling in home sales from a year ago, while others are seeing contract signings cut in half. Price conditions vary tremendously, even within a locality, depending upon a neighborhood's exposure to subprime loans," NAR's Yun said.

Source: Reuters