The Pending Home Sales Index, a leading indicator that tracks pending sales of existing homes, held steady in January at 85.9, a potential sign that the housing market may be starting to stabilize.

However, the index, released monthly by the National Association of Realtors (NAR), was 19.6 percent below its January 2007 reading of 106.8.

"This sign of a stabilizing market is encouraging, and our members are telling us there's been a pickup in shopping activity," said Lawrence Yun, the NAR's chief economist.

Yun said the volume of existing-home sales is expected to hold steady through late spring, with a gradual recovery later this year as the mortgage situation improves in high-cost areas. Yun said many home buyers are waiting for the higher mortgage loan limits to go into effect.

"The higher loan limits for both FHA and conventional loans will increase consumer choice and provide greater access to lower interest rate mortgages in high-cost regions," Yun said.

Carl Reichardt, senior equity research analyst at Wachovia Securities, said after reaching its all-time low of 85.8 in August 2007, the Pending Home Sales Index has remained at levels within four points of the low for five consecutive months, possibly suggesting a market floor.

However, Reichardt indicated that the industry should proceed with caution.

"It's important to recognize that the Pending Home Sales Index represents initial contract activity, not actual closings, and does not account for transactions in escrow that fail to close," said Reichardt.

"We therefore believe that the Pending Home Sales Index overstates true existing-home activity," he concluded, pointing out that the NAR's Existing Home Index, which measures actual closings, reached a cycle-low in January, suggesting that a floor has yet to be reached.

On the new-home sales front, Yun said new-home sales should decline 23.7 percent to 590,000 this year before rising 7.2 percent to 633,000 in 2009. Housing starts, including multifamily units, will probably fall 25.1 percent to 1.01 million this year, and then continue to slip another 2.7 percent to 987,000 in 2009.

Yun said as home builders sharply cut back production, vacant new-home inventory has consistently declined during the past 18 months, a situation he predicts will lead to a faster return to "balanced" market conditions in many local areas.

NAR estimates that the median new-home price is likely to fall 6.1 percent to $232,200 this year and then rise 5.1 percent in 2009.