Pending home sales dropped 5.5% in April after reaching the highest level in two years the month before, according to the National Association of Realtors.

The index tracks contract signings and not closings. While pending home sales dipped from March, they remain 14.4% above last year.

Pending home sales in the Northeast actually rose nearly a full percentage point in April and were nearly 20% higher than levels measured last year.

The West showed the largest dip of 12% over the month before but was still more than 5% above last year.

Lawrence Yun, chief economist for NAR, stayed upbeat despite the setback. He pointed out pending home sales were above year-ago levels for the 12th straight month.

NAR even increased its forecast of existing home sales for the year, increasing it to 4.66 million for 2012 compared to 4.26 million in 2011. It bumped its forecast for 2013 to between 4.5 million and 5.3 million, depending on lending practices and budget policy changes.

NAR also said because of smaller inventories kept for sale on the market, it expects home prices to rise as much as 3% this year and even 5% in 2013.

A 5% gain in national prices, Yun claims, would cut the amount of underwater borrowers to 9 million from the current level of 11 million.