Pending home sales rose on both a monthly and an annual basis in January.  The National Association of Realtors® (NAR) which compiled the data said January was the 21st consecutive month when its Pending Home Sales Index was higher than one year earlier.

The Index increased 4.5 percent from 101.3 in December to 105.9 and was 9.5 percent above January 2012 when it was 96.7.  The Index is a forward looking indicator based on contract signings for home purchases.  The contract is generally expected to convert to a home sale in about 60 days.

The January index is at the highest level since just before the deadline for the home buyer tax credit in April 2010 when it hit 111.9 and February 2007 when it reached 107.9 in a less artificial market.

Lawrence Yun, NAR chief economist, said inventory is the key to this year's housing market.  "Favorable affordability conditions and job growth have unleashed a pent-up demand.  Most areas are drawing down housing inventory, which has shifted the supply/demand balance to sellers in much of the country.  It's also why we're experiencing the strongest price growth in more than seven years," he said.

"Over the near term, rising contract activity means higher home sales, but total sales for the year are expected to rise less than in 2012, while home prices are projected to rise more strongly because of inventory shortages," Yun said.

Pending sales were up on a regional basis in all four regions although Yun said that once again the lack of inventory is constraining activity in the West.  That region eked out a 0.1 percent monthly increase to 102.1 but year-over-year sales were down 1.5 percent.  The Index was up 8.2 percent on a monthly basis and 10.5 percent year-over-year to 84.8 in the Northeast, 4.5 percent and 17.7 percent to 105.0 in the Midwest and 8.9 percent and 11.3 percent in the South to an index of 119.3.

Yun expects approximately 5.0 million existing-home sales this year, 543,000 of which will be new homes.  However, price growth could exceed a 7 percent gain projected for 2013 if inventory supplies remain low.  Previously, NAR had expected 5.1 million existing-home sales in 2013, while prices were forecast to rise 5.5 to 6.0 percent.   The NAR is also forecasting 1.13 million housing starts this year.

NAR also released the revised Pending Home Sales Index for all of 2012.  The Index, while experiencing small and occasional decreases trended fairly steadily upwards through the year, starting at 96.7 in January and ending the year at 101.3.  The high for the year was 103.8 in October.