The National Association of Realtors on Wednesday morning reported a sharp jump in its Pending Home Sales Index, which was up 7.4% in August to 93.4, an increase of 8.8% from August 2007. The index is at the highest level since it stood at 101.4 in June 2007.

The magnitude of the jump was driven by pending home sales in the West, where the index soared 18.4% to 109.5 in August, 37.8% above a year ago, as buyers snapped up foreclosed homes in California, Arizona and Nevada. The index was up 8.4% in the Northeast to 79.8, 2% above last August, with signed contracts surging in Washington D.C. and Rhode Island, according to NAR.

The index in the Midwest was up a more modest 3.6% to 84.5, 6.6% above a year ago, and it fell 2.3% in the South to 96.0, 2.1% below August 2007.

"What we're seeing is the momentum of people taking advantage of low home prices," said Lawrence Yun, NAR chief economist. "Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie," he said. "August shows some unleashing of pent-up demand before the credit crisis accelerated in September."

Yun cautioned, however, that the sample size for the PHSI is smaller than that for existing-home sales and thus is considerably more volatile. "We need to see just how much of this gain holds up," Yun said. "It's unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we¹re hopeful most of the increase will translate into closed existing-home sales."

The NAR now forecasts existing-home sales at 5.04 million this year and 5.41 million in 2009, with prices rising 2% to 3% in 2009 following national declines of 5% to 8% in 2008. The forecast for new-home sales is 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall 28.2% to 973,000 units this year and come in around 843,000 in 2009, the NAR predicts.

Wachovia Securities home-building analyst Carl Reichardt took a jaundiced view of the data. While noting that the rise in the PHSI was generally positive, he wrote in a note to investors that "an increase in foreclosure sales is likely a key driver to this month's move." Reichardt continued, "While depleting the inventory of foreclosed homes is a positive for the housing market, we believe this does not necessarily translate directly into demand for NEW homes. Indeed, new home sales fell to their worst seasonally adjusted level in 17 years in August. We also note that August PHS data may have been buoyed by the October 1, 2008, expiration of downpayment assistance programs, and the emergence of the $7,500 first-time buyer tax credit, both set forth in the recently passed Housing Economic and Recovery Act."