Pending home sales show a sustained uptrend, rising for four consecutive months with very favorable housing affordability and a first-time buyer tax credit boosting activity, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.

Lawrence Yun, NAR's chief economist, cautioned that there could be delays in the number of contracts that go to closing.

“Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said. “Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”

The Pending Home Sales Index in the Northeast rose 3.1 percent to 80.9 in May and is 6.8 percent above a year ago. In the Midwest, it slipped 1.3 percent to 89.2 but is 11.4 percent above May 2008. The index in the South declined 1.7 percent to 92.6 in May but is 7.9 percent higher than a year ago. In the West, the index rose 2.2 percent to 96.9 and is 0.7 percent above May 2008.

Charles McMillan, NAR's president, said the appraisal issue is complicated. He said that the industry is seeing distressed homes often selling for 20 percent less than normal homes in the same area, but he warned that some appraisals fail to distinguish between traditional homes and distressed property.

“In many cases appraisers from outside the area are being used, but as everyone knows real estate is local and appraisals should be done by an expert with local expertise," he added.

McMillan said sellers should not hesitate to speak with an appraiser about their home. He said sellers should feel free to tell an appraiser about improvements and renovations to their home, and how it compares with other homes in their neighborhood.

NAR reported that its Housing Affordability Index remains at historic highs. The affordability index fell to 171.6 in May from an upwardly revised 178.8 in April, which was the highest on record dating back to 1970.

“Under these conditions the typical family would devote only 14.6 percent of gross income to mortgage principal and interest, which is one of the lowest percentages on record,” Yun said.

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.

The first-time homebuyer tax credit also is benefiting the market, according to Yun.

“Strong activity by entry level buyers is helping to absorb inventory and allow some existing owners to make a trade,” Yun said. “The big question (about existing-home sales) is how much the appraisal issue will impact the ability of contracts to go to closing. We are currently conducting a study to assess the degree to which new appraisal rules are impacting home sales.”