WASHINGTON (Bloomberg) - Sales of previously owned homes in the US rose in May from a record low, signaling depressed prices lured some buyers into the market.

Resales increased two percent to a 4.99 million annual rate, higher than forecast, from a 4.89 million pace in April, the National Association of Realtors said yesterday in Washington. The median price dropped 6.3 percent from May last year.

A drop in property values may have spurred demand in some of the most distressed areas, such as California and the Midwest. Even so, rising mortgage rates, a glut of unsold homes, and stricter borrowing rules indicate the real estate recession will persist for most of the year.

"Although it looks like it's improving, the housing market still has a long period of adjustment," said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, who forecast sales would rise to a five million pace. "There is still a huge imbalance" between sales and inventories.

Economists forecast home resales would rise to a 4.95 million pace, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from 4.75 million to 5.15 million.

April's matched a record low for existing home sales.

Compared with a year earlier, sales were down 16 percent in May.

Other reports yesterday showed that firings remained elevated last week and the economy grew in the first quarter at a faster pace than previously estimated.

Initial jobless claims were unchanged at 384,000, according to the Bloomberg survey median. The total number of people collecting benefits rose by 82,000 to 3.139 million in the week ended June 14, the highest since February 2004.

Gross domestic product rose at a one percent annual rate for the first three months of the year, compared with the 0.9 percent pace estimated last month, according to the survey median. Following the fourth quarter's 0.6 percent growth rate, the economic expansion for the six months ended in March was the weakest in five years.

The median price dropped to $208,600 last month from $222,700 in May of 2007.

Yesterday's report showed resales rose in three of four regions, led by a 5.5 percent gain in the Midwest. Purchases increased 4.6 percent in the Northeast and two percent in the West. Sales dropped 0.5 percent in the South

Sales of existing single-family homes climbed 1.6 percent to an annual rate of 4.41 million pace. Purchases of condos and co-ops increased 5.5 percent to a 580,000 rate.

"Home sales are rising in distressed markets," said Paul Bishop, a senior economist at the agents group. About one-third of total sales last month were "short sales" that reflected foreclosures or distressed properties, according to NAR estimates.

The number of previously owned unsold homes on the market at the end of May fell 1.4 percent to 4.49 million from 4.55 million in April.

The total represented 10.8 months' supply at the current sales pace. The agents' group has said that a five- to-six month's supply reflects a balanced market.

Banks repossessed twice as many homes in May as in the same month last year and foreclosure filings rose 48 percent, according to RealtyTrac Inc., a real estate database in Irvine, California.

The California Association of Realtors yesterday said sales in that state rose 18 percent in May from the same month last year as median prices dropped 35 percent.

The increase was due to a high number of "distressed sales", the group said.