The National Association of Realtors' Pending Home Sales Index rose 3.2% in March as first-time home buyers appeared to be taking advantage of the $8,000 federal tax credit and lower home prices overall.The rise, however, was driven by gains in the South and West that offset a big decline in the Northeast.

The PHSI, a forward-looking indicator based on contracts signed in March, stood at 84.6 in March, up 82.0 in February and 83.7 last March. The baseline for the index is a reading of 100, which is based on average contract activity for 2001, when the metric was created.

"This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment," said Lawrence Yun, NAR's chief economist. He cautioned, however, that "we need several months of sustained growth to demonstrate a recovery in housing."

Regionally, the PHSI was up 8.5% in the South to 93.2, 7.7% above a year ago; up 3.9 percent in the West to 93.1, 1.7% higher than March 2008; and down 1% in the Midwest to 82.3, 8.2% ahead of last year. The Northeast, however, was down 5.7% to 59.5, 24.1% below a year ago.

The NAR also reported that its HousingAffordability Index was down to 166.7 in March from an upwardly revised record of 174.4 in February. The index remains 30.8 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income; tracking began in 1970.

According to NAR, a median-income family, earning $61,100, could afford a home costing $291,600 in March with a 20% down payment, assuming 25% of gross income is devoted to mortgage principal and interest. The affordable price was notably higher than the median existing single-family home price in March, which was $174,900.

The NAR data was welcomed by some on Wall Street. Carl Reichardt, home building analyst at Wachovia, put out a research note stating, "Along with both new home sales and the NAHB/Wells Fargo Housing Market Index of last month, pending home sales results outpaced relatively meager expectations. Combined with field data and builder commentary that continues to support increased sales activity in the tracts, we believe housing demand is broadly increasing from year-earlier levels, even with seasonality taken into account. Sustenance of these trends remains a question, but we believe evidence is building that the cyclical lows for housing demand activity have passed."

Less positive was J.P. Morgan's Michael Rehaut, who wrote, "While the March Pending Home Sales Index rose 3.2% to 84.6, which was above the Street's flat estimate, we believe the Index overall remains at a fairly depressed level, as it is still below December's 87.1 and September's 90.9. Accordingly, given our outlook for a relatively weak demand environment to continue, driven by rising unemployment, low consumer confidence, and still tight credit conditions, we believe the Index should remain depressed over the next several months."