As expected, the Pending Home Sales Index from the National Association of Realtors fell in November as the federal first-time home buyer tax credit expired. What was not expected was the magnitude of the drop.

The NAR said Tuesday that the PHSI, a forward-looking indicator based on contracts signed in November, dropped 16.0% to 96.0 from an upwardly revised 114.3 in October, more than triple the decline analysts expected. Though down, the index remained 15.5% percent higher than November 2008's 83.1.

"It will be at least early spring before we see notable gains in sales activity as home buyers respond to the recently extended and expanded tax credit," said Lawrence Yun, NAR chief economist. "The fact that pending home sales are comfortably above year-ago levels shows the market has gained sufficient momentum on its own. We expect another surge in the spring as more home buyers take advantage of affordable housing conditions before the tax credit expires."

The new tax credit passed by Congress in the fall, up to $8,000 for first-time buyers and $6,500 for repeat buyers, will apply to purchase transactions made by April 30 and closed by June 30.

The drops were led by the Northeast and Midwest, with the former down 25.7% from October but 14.7% ahead of November, 2008 and the latter also down 25.7% sequentially but up 9.7% year-over-year. The index for the Northeast stood at 74.4 in November; it was 82 in the Midwest.

Pending home sales in the South fell 15% to 97.8, 14.7% higher than a year ago. In the West the index was down 2.7% to 124.6, 21.4% ahead of November 2008.

The Realtors project that an additional 900,000 first-time buyers will qualify for the extended tax credit in addition to about 2 million who have already purchased. It expects 1.5 million repeat buyers to benefit from the credit.

There is a timing issue for some, however. "Many trade-up buyers, who have historically timed their purchase based on school-year considerations, will have to accelerate their buying plans if they need the tax credit to make a trade," Yun said. According to NAR, repeat buyers do not have to sell existing homes to qualify for the credit but must occupy the home they buy as their primary residence.

There also is the issue of interest rates as the year wears on. The NAR expects rates "will likely inch higher in 2010."

As the new tax credit expires, the Realtors believe the economy will begin adding new jobs, which will soften the impact of the expiration and "will support home buying activity and absorb enough inventory to bring a rough balance between buyers and sellers."

The NAR projects that, as a result, home prices will at least stabilize and perhaps rise during 2010.