Even though contract signings declined in December it was the 20th straight month where pending home sales increased on an annual basis.  The National Association of Realtors® (NAR) said that its Pending Home Sales Index (PHSI) fell 4.34 percent in December to 101.7 from 106.3 in November.  It was however 6.9 percent higher than in December 2011 when it was 95.1.

The Pending Home Sales Index is a forward looking indicator based on signed purchase agreements.  Home sale transactions are generally expected to close within two months of contract signing.

NAR's chief economist Lawrence Yun said the uptrend in home sales is uneven. "The supply limitation appears to be the main factor holding back contract signings in the past month.  Still, contract activity has risen for 20 straight months on a year-over-year basis," he said.  "Buyer interest remains solid, as evidenced by a separate Realtor® survey which shows that buyer foot traffic is easily outpacing seller traffic."

Yun noted that lower priced homes - those under $100,000 - are in short supply in most of the country.   "We expect a seasonal rise of inventory in the spring to help, but a seller's market may be developing."   He said the West in particular offers few options for first-time buyers and many parts of the region are already a sellers' market for homes priced under a million dollars.  On the other hand, he said conditions are much more balanced in the Northeast.

Even with tighter inventory, a pent-up demand and favorable affordability conditions bode well for the market.  Yun expects existing-home sales to increase another 9 percent in 2013, following a 9 percent rise in 2012.

The Index in the Northeast fell 5.4 percent to 78.8 in December but is 8.4 percent higher than a year earlier.  In the Midwest the index rose 0.9 percent to 104.8 in December, 14.4 percent above a year ago.  Pending home sales in the South declined 4.5 percent to an index of 111.5 in December but are still up 10.1 percent on an annual basis.  In the West the index fell 8.2 percent in December to 101.0 and is 5.3 percent below a year ago.