Pending home sales in January surged to the highest level since August 2013 after a steep drop last month, according to the National Association of Realtors.

All major regions except for the Midwest saw gains in activity in January thanks to improved buyer demand at the beginning of 2015.  

The Pending Home Sales Index, a forward-looking indicator based on contract signings, grew 1.7% to 104.2 in January, from an upwardly revised 102.5 in December, and is now 8.4% above January 2014 (96.1).

This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month’s gain.

Lawrence Yun, NAR chief economist, says that for the most part buyers in January were able to overcome tight supply to sign contracts at a pace that highlights the underlying demand that exists in today’s market.

“Contract activity is convincingly up compared to a year ago despite comparable inventory levels,” he said. “The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth.” 

Yun also points to more favorable conditions for traditional buyers entering the market. All-cash sales and sales to investors are both down from a year ago, creating less competition and some relief for buyers who still face the challenge of limited homes available for sale.

“All indications point to modest sales gains as we head into the spring buying season,” says Yun. “However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double-digits isn’t healthy or sustainable in the current economic environment.”

Looking across the nation, the PHSI in the Northeast barely increased 0.1% to 84.9 in January, and is now 6.9% above a year ago.

In the Midwest the index decreased 0.7% to 99.3 in January, but is 4.2% above January 2014. 

The South witnessed the largest increase, up 3.2% to an index of 121.9 in January (highest since April 2010) and is 9.7% above last January.

The index in the West rose 2.2% in January to 96.4, and is 11.4% above a year ago.

Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.4% from 2014. The national median existing-home price for all of this year is expected to increase near 5%.

Last year, existing-home sales declined 2.9% and prices rose 5.7%.