The Pending Home Sales Index, a forward-looking indicator based on contracts signed in June, rose 5.3% to 89.0 from a downwardly revised reading of 84.5 in May, but remains 12.3% below June 2007 when it stood at 101.4.

Lawrence Yun, NAR chief economist, said sales have been in a pattern of rising and falling within a fairly narrow range. “The vacillation of data from one month to the next indicates a housing market in transition,” he said. “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery. With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009.”

The PHSI in the West rose 4.6% to 101.0 in June but remains 1.7% below a year ago.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the housing stimulus package will provide long-term relief. “Provisions to stem foreclosures are helpful, but a greater lift to the economy should come from higher mortgage limits, enhancements to the FHA loan program and the first-time home buyer tax credit,” he said.

With roughly 2.5 million first-time home buyers taking advantage of the temporary tax credit, existing-home sales are likely to rise 7.0% to 5.51 million in 2009 from a expected total of 5.15 million this year.

Yun said home prices did not fall as much as anticipated in the second quarter. “Buyers entering the hardest-hit markets, in some cases with multiple-bid offers, may have put a floor on prices,” he said. “ In addition, rising commodity prices and higher construction costs have resulted in a very unusual market today with existing-home prices being less than replacement building costs in some areas. Home prices are projected to increase 3 to 6% in 2009.”

“Builders need to further cut production to help trim inventory. However, new-home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said. New-home sales are forecast to drop 8.8% to 464,000 in 2009 from 509,000 this year. Housing starts, including multifamily units, should fall 8.8% next year to 795,000 from 960,000 in 2008.

The 30-year fixed-rate mortgage, which also has been vacillating, is likely to trend up to 6.5% by the end of 2008, and then hold at that level for most of next year. NAR’s housing affordability index is forecast to remain favorable this year, averaging 13 percentage points higher than in 2007.

Inflation, as measured by the Consumer Price Index, is seen at 4.1% in 2008 and 2.6% next year. Inflation-adjusted disposable personal income is estimated to grow 1.7% this year and 1.1% in 2009.