Sales of existing U.S. homes rose 4.3 percent to 4.57 million in January, up from a revised 4.38 million in December, according to the National Assocation of Realtors, marking further improvement in the housing market as interest rates remained low and the job market saw gains.

The uptrend in home sales is in line with all of the underlying fundamentals -- pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents , said Lawrence Yun, NAR's chief economist, in a statement.

While sales reached the highest level since May 2010, they fell below expectations from analysts polled by Reuters, who had forecast 4.66 million in existing home sales in January.

Sales were 0.7 percent above the 4.54 million units sold in January 2011. Inventory fell 0.4 percent to 2.31 million available homes.

The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers, Yun said.

Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be needed at this time.

The median sales price was $154,700 in January, down 2 percent from the prior year. Distressed sales, including foreclosures and short sales, were 35 percent of the market, up from 32 percent in December, but down from 37 percent from the prior January.

All-cash deals were 31 percent of the market in January, unchanged from the prior month, and down slightly from 32 percent in January 2011. Investors accounted for the bulk of all-cash deals and represented 23 percent of home sales, up from 21 percent in December and unchanged from the prior year.

First-time buyers made up 33 percent of transactions in January, up from 31 percent in December and 29 percent from the prior year.

Although month-over-month sales increased in all regions, pricing dropped compared to the prior year.

Sales in the Northeast were up 3.4 percent month-over-month in January to an annual pace of 600,000, and up 7.1 percent from a year ago. But the median price was down 4.2 percent year-over-year to $225,700.

Midwest sales were up 1 percent month-over-month and up 3.2 percent from the prior year to 980,000, while median price dropped 3.9 percent year-over-year to $122,000.

Sales in the South were up 3.5 percent month-over-month to 1.76 million, but were unchanged from the prior year's pace. The median price was $134,800, down 0.3 percent from the prior year.

Western sales were up 8.8 percent to 1.23 million in January, but down 3.1 percent from a spike in January 2011. The median home price in January was $187,100, down 1.8 percent from the prior year.

Lower prices may entice more prospective buyers, but expected further declines could also discourage them.

Word has been spreading about the record high housing affordability conditions and our members are reporting an increase in foot traffic compared with a year ago, said Moe Veissi, president of NAR.

With other favorable market factors, these are hopeful indicators leading into the spring home-buying season. We're cautiously optimistic that an uptrend will continue this year.