A for sale sign is shown for a residential home in Encinitas, California, U.S. July 25, 2025. REUTERS/Mike Blake

WASHINGTON (Reuters) -Contracts to purchase previously owned U.S. homes increased more than expected in October, likely as lower mortgage rates pulled buyers back into the market.

Pending home sales rose 1.9% last month after an upwardly revised 0.1% gain in September, the National Association of Realtors said on Tuesday.

Economists polled by Reuters had forecast contracts, which become sales after a month or two, rising 0.5% after a previously reported unchanged reading in September.

Pending home sales fell 0.4% from a year earlier.

"Days on the market typically lengthen from November through February, providing better negotiating power to buyers during the holiday season," said Lawrence Yun, the NAR's chief economist.

Contracts rose in the Northeast, Midwest and the densely populated South, but fell in the West.

Mortgage rates decreased when the Federal Reserve resumed its interest rate cuts, data from mortgage finance agency Freddie Mac showed. The decline has, however, stalled as some U.S. central bank officials have signaled a reluctance to lower rates again in December. But New York Fed President John Williams said last Friday rates could fall "in the near term."

But even if mortgage rates dropped further, a sluggish labor market remains a constraint for the housing market. The unemployment rate climbed to 4.4% in September from 4.3% in August, the government reported last week.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )