The pending home sales index, an index tracking the level of sales contracts on previously owned homes, gained a surprising 6.3% for the month of December, as increased affordability and lower interest rates spurred demand. The index came in at 87.7, up from 82.5 the previous month. Economists were expecting a reading of 82.3, so today’s report is quite unexpected and very bullish.

It seems that we are at the cusp of a recovery and eventual rebound in housing, as existing home sales were also higher in December. Conditions for a rebound are ideal, as well (via the NAR):

NAR’s Housing Affordability index rose 10.9 percent in December to 158.8, the highest on record. The HAI shows that the relationship between home prices, mortgage interest rates and family income is the most favorable since tracking began in 1970.

But, keep in mind, one month does not make a trend. We will be tracking these numbers in the next few months to see if a trend has developed.

The PHSI in the Northeast slipped 1.7 percent to 62.1 in December and is 14.5 percent below a year ago. In the Midwest the index jumped 12.8 percent to 83.7 but remains 1.2 percent below December 2007. The index in the South surged 13.0 percent to 96.8 in December and is 1.6 percent above a year ago. In the West, the index fell 3.7 percent to 97.5 but remains 17.5 percent higher than December 2007.

The pending home sales index, which is considered a leading indicator of existing home sales, is actually positive in the last year, up 2.1% from December 2007. The increase during December points to a healthy gain in existing-home sales in January and February.

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