NAR's Pending Home Sales Index increased 6.9 percent in December, posting the 20th straight month of yearly increases for the index.

By Peter Ricci

The Pending Home Sales Index from the National Association of Realtors (NAR), one of the best indicators in housing for future home sales, posted strong numbers in December, increasing 6.9 percent year-over-year in December.

Though the Pending Home Sales Index was down a bit from November to December, falling 4.3 percent, it has now increased yearly for 20 consecutive months.

Pending Home Sales Index – Affected by Low Housing Inventory?

Lawrence Yun, the chief economist for NAR, said that low housing inventory was the main reason for the Pending Home Sales Index’s monthly decline.

“The supply limitation appears to be the main factor holding back contract signings in the past month,” Yun said. “Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options … We expect a seasonal rise of inventory in the spring to help, but a seller’s market may be developing.”

And as we wrote last week, housing inventory is indeed at its lowest level in years, with the 1.82 million active properties being the lowest amount since May 2005. Negative equity, patient home sellers waiting for stronger returns and historically low levels of homebuilding have all contributed to the low housing inventory.

Housing Supply and Pending Sales in 2013

Despite all those factors leading to lower and lower housing inventory, there are some positive signs on the horizon. For one, Yun said that homebuyer interest remains strong, even in the face of tight supply.

“Buyer interest remains solid, as evidenced by a separate Realtor survey that shows buyer foot traffic is easily outpacing seller traffic,” Yun said.

Also, sellers are not expected to wait on the sidelines forever. As Redfin recently found in its Real-Time Seller Survey, home sellers are growing more and more confident with the housing recovery, and as that confidence grows, more sellers will decide to put their homes on the market.

And Yun agrees with that trajectory – he’s expecting existing-home sales to rise 9 percent in 2013, after a 9 percent increase in 2012. So stay tuned for a strong Pending Home Sales Index in the coming months.