In a promising start to the new year, more potential home buyers signed contracts in January, according to the National Association of Realtors (NAR), whose monthly Pending Home Sales Index rose 2.0% compared to December and was up 8.0% year-over-year.

The reading is the highest seen since April 2010, when the home buyer tax credit gave the index a temporary lift.

"The trend in contract activity implies we are on track for a more meaningful sales gain this year," wrote Lawrence Yun, chief economist at NAR, in a statement regarding the numbers. "With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations."

However, the forward-looking indicator is not always a dependable prognosticator. Its numbers for last August and September, for example, were down only to be followed by gains in both new- and existing-home sales in October, November, and December.

"It is not always reliable, but it is all we have," wrote Patrick Newport, U.S. economist at IHS Global Insight, in an email to Builder today. Even so, "today’s report was a good one," he wrote, pointing to recent gains in new- and existing-home sales and single-family starts and permits, as well as promising readings from the NAHB/Wells Fargo Housing Market Index. "Still, we are not expecting this to be a banner year for existing sales because credit remains tight, and loosening it may require that Freddie Mac and Fannie Mae lower their standards—something they are not ready to do."

Yun acknowledged that the index’s readings have been "uneven," which he attributed to "the headwinds of tight credit." However, he pointed to job gains, high levels of affordability, and rising rents as good signs that "are hopefully pushing the market into what appears to be a sustained housing recovery."

Regionally, the index was split between improvements in the Northeast and South and declines in the Midwest and West. The Northeast was up 7.6% and 9.8% on a monthly and yearly basis, respectively, rising to a reading of 78.2. The South was up 7.7% from December and gained 10.5% over the previous year, for a reading of 109.1. The Midwest declined 3.8% from the previous month to a reading of 88.1, but remained 10.8% higher on an annual basis. And the West was down 4.4% for the month to a reading of 101.9, but was up 0.7% from January 2011.

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: Greenville, SC.