U.S. new home sales fell 1.6 percent in February, but prices jumped to their highest level since June 2011, the Commerce Department reported Friday. Reuters

U.S. pending home sales increased 10.4 percent in October from the previous month, according to the National Association of Realtors (NAR), an encouraging sign for the housing market.

The monthly gain was the largest since November 2010 and followed a 4.6 percent decline in pending sales in September. A Bloomberg survey had forecast a 2 percent increase.

Pending home sales rose 17.7 percent in the Northeast, 24.1 percent in the Midwest and 8.6 percent in the South. Pending sales declined 0.3 percent in the West during that period, but are up 8.1 percent compared to the previous year. Western states including California, Nevada and Arizona have been particularly hit hard by the housing collapse.

Overall pending sales also rose 9.2 percent above October 2010 numbers. The figure measures contracts that have been signed, but haven't closed.

The numbers are very solidly positive, said Lawrence Yun, NAR's chief economist, in a video interview with Realtor magazine.

The year-over-year increase was particularly encouraging, said Yun, because sales were compared to activity from last October, which wasn't bolstered by the Federal Tax Credit for first-time homebuyers, which artificially increased home sales in the early part of 2010. Thus, the increase suggests that there may be a natural increase in demand that isn't relying on additional incentives.

We are well past the volatility brought by the homebuyer tax credit, said Yun.

Affordable housing prices, record low interest rates, as well as increasing rental rates could push more people to buy homes in the next year.

There are a lot of ingredients to suggest that there should be an increased demand for real estate, and maybe this is a genuine first sign that it can be sustained, said Yun.

However, while pending home sales were historically seen as a reliable leading indicator of the housing market, recent troubles with mortgages have caused some sales to not close. Continued declining home prices may also discourage buyers from entering the market.

See Realtor magazine's video interview with Yun below: