Sales of previously owned homes increased in January and an index of leading indicators climbed for a second month as the rebound in housing helped to broaden the U.S. expansion.

Purchases of existing houses rose 0.4 percent to a 4.92 million annual rate, figures from the National Association of Realtors showed. A gauge of the economic outlook for the next three to six months advanced 0.2 percent after a 0.5 percent December gain, according to the New York-based Conference Board.

Improving home sales combined with dwindling inventory spurred the biggest advance in property values since 2005, helping mend household finances. The gain in housing, the industry that was at the center of the financial crisis, may help consumers overcome an increase in the payroll tax and rising gasoline prices that pose a risk to spending.

"The economy has legs," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a unit of the largest U.S. mortgage lender. "A lot of people are much more confident. Housing has picked up, and I think it’s sustainable."

The median forecast of 79 economists surveyed by Bloomberg projected the January pace of existing home sales at 4.9 million. Estimates ranged from 4.7 million to 5.1 million. The prior month’s pace was revised to 4.9 million from a previously reported 4.94 million.

The number of previously owned homes on the market fell 4.9 percent to 1.74 million, the fewest since December 1999, the report from the Realtors’ group showed. At the current sales pace, it would take 4.2 months to sell those houses, the fewest since April 2005.

"Inventory has increasingly become the story of the housing market," Lawrence Yun, NAR chief economist, said in a news conference as the figures were released. "We do expect some relief in inventories as the spring season comes around." He also said that "only the home-builders can truly relieve the inventory" shortage.

PulteGroup, Lennar Corp. and D.R. Horton Inc., the top three U.S. home-builders by market value, said orders rose in the most recently reported quarter. A report from the Commerce Department showed single-family home starts increased in January to the highest level since July 2008.

Construction’s Impact

Gains in construction will probably ripple out to other parts of the economy.

"If housing starts really do pick up as we expect and the economy picks up as we expect, I think what you’ll see is pretty good growth in the residential business" Gregory Hayes, chief financial officer at United Technologies Corp., said at a Feb. 7 conference. The Hartford, Connecticut-based company’s products include Carrier air conditioners and Otis elevators.

Tight supply and growing demand are helping firm property values. The median price of an existing home rose to $173,600 last month, up 12.3 percent from January 2012, the real-estate agents’ report today showed. It marked the biggest 12-month increase since November 2005.

Rising prices may be helping struggling homeowners find buyers. Home loans that were more than 90 days behind in payments or in the foreclosure process fell to 6.78 percent of mortgages in the third quarter, the lowest level since 2008, from 7.03 percent in the previous three months, the Mortgage Bankers Association said in a report. The rate was 7.73 percent a year earlier.

The improvement in the economic outlook is not only driven by housing. Six of the 10 indicators in the leading economic index contributed to the increase last month, led by stock prices and the spread between the federal funds rate and the yield on 10-year Treasury notes, the report showed.

"The indicators point to an underlying economy that remains relatively sound but sluggish," Ken Goldstein, an economist at the Conference Board, said in a statement. "The biggest positive factor is housing."

Applications for unemployment benefits rose for the first time in three weeks, returning to levels seen prior to the holiday period and indicating little change in the pace of firings. Jobless claims increased by 20,000 to 362,000 in the week ended Feb. 16, the Labor Department reported.

Little Inflation

The cost of living was little changed in January for a second month as a drop in energy costs offset gains in clothing, hotel rates and airline fares, another report from the Labor Department showed. Over the past 12 months, the consumer-price index increased 1.6 percent, the smallest year-over-year gain since July.

The news on the manufacturing front was less positive. Manufacturing in the Philadelphia region unexpectedly contracted in February for a second month, according to data from the Federal Reserve Bank of Philadelphia. The bank’s general economic index dropped to minus 12.5, the lowest reading since June, from minus 5.8 in January. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The reading followed New York Fed data released last week that showed factory activity rebounded after six months of contraction, raising prospects that factories could contribute to expansion this year.