The National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) fell 0.4 percent to 104.8 in January, the third month-over-month decline in the last four months, the association reported Wednesday.

Economists had expected a 0.7 percent drop to 105.2 from January’s originally reported 105.9 The January index reading was revised to 105.2.

The NAR report came one day after the Census Bureau and HUD reported new home sales fell 4.6 percent in to 411,000 in February, the sharpest drop in two years. Both the new homes sales and the pending home sales reports measure contract signings and are designed to be forward-looking indicators.

The last time the PHSI dropped in three of four months was at the beginning of 2011, when the index fell in January and February, improved in March, and fell again in April.

NAR chief economist Lawrence Yun attributed the drop in the PHSI to weak inventory of existing homes for sale.

According to the latest existing home sales report—which tracks closings—there were 1.94 million homes for sale at the end of February, a 4.7-month supply. The number of homes for sale has averaged 2.19 million for the last 12 months, down from an average of 2.8 million in the previous 12 months.

Yun said the inventory shortage would be relieved by an uptick in construction of new single-family homes, though single-family home completions regularly exceed new home sales. Government reports indicate builders have shifted from construction of single-family homes to multifamily, suggesting reluctance among younger, first-time homebuyers who witnessed the impact of the housing meltdown.

The month-over-month trend in sales correlates inversely with the movement in the median price; that is, when the median price falls, sales improve, as happened four times in the last 12 months.

The PHSI in the Northeast fell 2.5 percent to 82.8 in February and is 6.8 percent higher than February 2012. In the Midwest, the index increased 0.4 percent to 103.6 in February and is 13.2percent above a year ago. Pending home sales in the South slipped 0.3 percent to an index of 118.8 in February, 12.1 percent higher than February 2012. In the West, the index edged up 0.1 percent in January to 101.4 but is 0.8 percent below a year ago.

The PHSI is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

by Mark Lieberman