Pending home sales inched up 1% in December

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Contracts for home purchases in December eked out a gain over the prior month, according to data out Tuesday, one sign that the U.S. housing market might muddle along in the coming months following a huge December sales plunge.

The pending home sales index, a forward-looking indicator put out by the National Assn. of Realtors based on contracts signed in December, increased 1% to 96.6 from 95.6 in November. It remains 10.9% above December 2008 when the index was at 87.1.

The index gives economists a look at demand for housing. Contracts signed in December will translate into sales in following months if the deals manage to successfully close escrow.

In November, the index fell 16.4% after surging for months as buyers rushed to take advantage of an $8,000 tax credit for first-time buyers before an original Nov. 30 deadline.

The November drop in the index was followed by a 16.7% December plunge in U.S. home resales -- the biggest drop in the 42 years the Realtors group has been measuring home sales -- as the extension of that tax credit by Congress failed to keep the buying momentum going into the holiday season.

Congress in early November pushed the deadline for the tax credit to April 30 and expanded the program to include up to $6,500 for some buyers who already own homes.

Some experts predict the national housing market will pick up again as the renewed credit approaches its
expiration and interest rates remain low. Others see weakness for months to come given the high rate
of joblessness.

Economists reacted positively to the news that contracts had inched up in December.

“The pending sales index stabilized at the end of 2009,” Michael D. Larson, an analyst with Weiss Research, wrote in a note to clients Tuesday. “That potentially sets the stage for a more positive spring selling season. Indeed, with mortgage rates low, house prices down, and the supply of homes for sale steadily falling, it’s easy to see why the market should stabilize.”

“There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” said Lawrence Yun, chief economist of the Realtors group. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels. December activity was the fifth highest monthly tally in two years.”

The West was the only part of the country that saw a decline in pending home sales. The index in the West fell 3.8% to 119.9, but is 18.6% above a year earlier.

The index in the Northeast rose 2.3% to 76.1 in December and is 14.9% above December 2008.

In the Midwest, the index increased 5.2% to 86.9 and is 8.7% above a year earlier.

Pending home sales in the South rose 2.2% to an index of 98.4. That is 5.5% higher than in December 2008.

In other news, shares for home builder D.R. Horton were up more than 11% in trading on the New York Stock Exchange Tuesday morning after the company posted better-than-expected earnings and strong sales.

-- Alejandro Lazo