The Pending Home Sales Index, a forward-looking indicator based on contract signings, grew 3.5% to 109.1 in February from a downwardly revised 105.4 in January, and is now 0.7% above February 2015 (108.3), according to the National Association of Realtors.
This increase in February marks the highest level in seven months and remains higher than a year ago.
While the index has now increased year-over-year for 18 consecutive months, last month's annual gain was the smallest.
“Today’s seasonally adjusted February pending home sales index showed a higher-than-expected increase of 3.5% from January, a good indication that existing-home sales for March should bounce back from the February decline,” said Jonathan Smoke, chief economist of Realtor.com.
“Two factors — low inventories and tight credit — will limit the gains we will see in 2016. However, given the level of pent-up demand evident in web activity and stated buyer intentions for 2016, we should see this spring materialize as the busiest season of sales since 2006,” Smoke said.
Broken up, the Midwest led the growth, surging 11.4% to 112.6 in February, and is now 2.5% above February 2015. The PHSI in the Northeast fell 0.2% to 94.0 in February, but is still 12.6% above a year ago.
Pending home sales in the South increased 2.1% to an index of 122.4 in February but are 0.4% lower than last February. The index in the West slightly grew 0.7% in February to 96.4, but is now 6.2% below a year ago.
Pending sales made promising strides in February, rising to the highest index reading since last July (109.8), Lawrence Yun, NAR chief economist, said.
"After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory," he said.
However, as it stands, supply is sill constrained. The latest existing-home sales report confirmed how barren the market is with total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, tumbling 7.1% to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January.
According to Yun, the one silver lining from last month's noticeable slump in existing-home sales was that price appreciation lessened to 4.4%, which is still above wage growth but certainly more favorable than the 8.1% annual increase in January.
"Any further moderation in prices would be a welcome development this spring," adds Yun. "Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition."
NAR forecasts existing-homes sales this year to be around 5.38 million, an increase of 2.4% from 2015. The national median existing-home price for all of this year is expected to increase between 4% and 5%. In 2015, existing-home sales increased 6.3% and prices rose 6.8%.
"Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what's being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau," said Yun.