WASHINGTON (Reuters) - Contracts to buy previously owned U.S. homes fell more than expected in May, a sign that the housing market was losing steam in the second quarter.

The National Association of Realtors said on Wednesday its pending home sales index, based on contracts signed last month, dropped 3.7 percent to 110.8.

Economists polled by Reuters forecast pending home sales falling 1.1 percent last month. Contracts usually become sales after a month or two.

The index was 0.2 percent lower than in May 2015. It was the first year-over-year decline in almost two years.

Contracts fell in all of the nation's four regions in May from the month earlier. Pending home sales for April were also revised downward to a 3.9 percent rise from 5.1 percent.

Both March and April, key selling months in the housing market, had readings that came in stronger than expected and the fall in May could partly be attributed to a lack of inventory, the NAR said.

The overall housing market has been underpinned by an economy near full employment and historically low mortgage rates.

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci)