Pending home sales rose slightly in December by response to the home buyer tax credit, according to the National Association of Realtors®, a positive sign heading to the spring buying season. The Pending Home Sales Index, a forward-looking indicator of potential home sales based on contracts signed in December, climbed one percent to 96.6 from 95.6 in November, the National Association of Realtors said Tuesday. It remains 10.9 percent above its December 2008 level of 87.1.

In November, the monthly index had a double digit drop of 16.4 percent from surging activity in preceding months. NAR’s chief economist Lawrence Yun, NAR’s chief economist said that these changes and skewing of trends can be attributed to the tax credit.

“There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” according to NAR’s chief economist Lawrence Yun. “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. December activity was the fifth highest monthly tally in two years.”

The credit had been set to expire November 30 before Congress extended it to April 30. Lawmakers also expanded the scope giving current homeowners a $6,500 tax credit.

Buyers who have a contract in place to purchase a primary residence by April 30, 2010, have until June 30, 2010, to finalize the transaction to qualify for a tax credit of up to $8,000 for first-time buyers and $6,500 for repeat buyers.

Regionally, the Midwest experienced the greatest monthly increase, where the index rose 5.2 percent to 86.9 and is 8.7 percent higher than the reading a year ago.

The Pending Home Sales Index in the Northeast increased 2.3 percent to 76.1 in December and is 14.9 percent above December 2008 reading.

In the Midwest the index rose In the South, the index climbed 2.2 percent to a reading of 98.4, and is 5.5 percent above December 2008 reading.

In the West the index dropped 3.8 percent to 119.9 but is 18.6 percent higher than the reading a year ago.

Yun predicts the extended and expanded tax credit will encourage 2.4 million households to take the credit in 2010. "While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010," Yun said. Last year there were 5.16 million existing-home sales.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.