Pending home sales fell in December, but still remain above year ago levels, suggesting a housing recovery is still in the works, the National Association of Realtors said.

Still, the association noted a limited supply of affordable homes in certain markets, causing a decline in home contract signings from November to December.

The NAR pending home sales index – which measures contract signings on homes – declined 4.3% in December to an index score of 101.7, compared to a score of 106.3 in November.  But that index score is still 6.9% above December 2011 when the index hovered at 95.1.

The data reflects only signed contracts, not actual property closings.

"The supply limitation appears to be the main factor holding back contract signings in the past month," said Lawrence Yun, NAR's chief economist. 

"Still, contract activity has risen for 20 straight months on a year-over-year basis," he said. 

Inventory limitations are starting to show up in markets with a limited supply of homes for under $100,000, making it difficult for first-time buyers to enjoy low interest rates and the recovery.

"We expect a seasonal rise of inventory in the spring to help, but a seller’s market may be developing," Yun said. "Much of the West is already a seller’s market for homes priced under a million dollars, but conditions are much more balanced in the Northeast."

The economist expects existing home sales to grow another 9% in 2013, following a 9% hike in 2012.

On a regional basis, pending home sales fell the most in the Northeast, declining 5.4%.

In the Midwest, the pending home sales index edged up 0.9% from November to December and is 14.4% above year ago levels.

The South saw a 4.5% drop in pending home sales month-to-month, while the West's index of pending sales fell 8.2%.