With many first-time buyers taking advantage of historically good housing affordability conditions, the National Association of Realtors released a report on Monday showing a notable increase in pending home sales in March.

The report showed that NAR's pending home sales index rose 3.2 percent in March following a downwardly revised 2.0 percent increase in February. Economists had expected the index to come in unchanged following the 2.1 percent increase originally reported for the previous month.

With the monthly increase, the pending home sales index was up 1.1 percent compared to March of 2008.

This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, said Lawrence Yun, NAR chief economist.

However, Yun noted, We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around.

While NAR's Housing Affordability Index slipped to 166.7 in March, it remained near the upwardly revised record high of 174.4 set in February. The index is up 30.8 percentage points compared to the same month year ago.

The unexpected increase in pending home sales reflected growth in the South and the West, where pending home sales rose 8.5 percent and 3.9 percent, respectively.

At the same time, pending home sales in the Northeast fell 5.7 percent, while pending home sales in the Midwest edged down 1.0 percent.

Peter Boockvar, equity strategist at Miller Tabak, noted that a decrease in the average 30-year mortgage rate was likely a key catalyst for the improvement in pending home sales along with the lower prices brought about by foreclosures.

One thing to watch looking out the next few months is the end of the foreclosure moratorium at many banks and how much more supply that creates, Boockvar said.

A pending sale is one in which a contract has been signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

In other economic news, the Commerce Department released a report showing an unexpected increase in construction spending, which rose 0.3 percent in March following a 1.0 percent decrease in February. Economists had expected spending to fall by about 1.6 percent.

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