The number of Americans who signed contracts to buy homes fell in December after hitting the highest level in a year and a half a month earlier.
The National Association of Realtors said its index of sales agreements fell 3.5 percent last month to a reading of 96.6. That's down from November's reading of 100.1.
But the reading is still the second highest since April 2010, the last month that buyers could qualify for a federal home-buying tax credit. After big gains in October and November, a modest correction "was always in the cards for December," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
A reading of 100 is considered healthy.
Contract signings typically indicate where the housing market is headed. There's a one- to two-month lag between a signed contract and a completed deal. But in recent months, a growing number of buyers have cancelled contracts at the last minute.
But a sale isn't final until a mortgage is closed and many are falling apart before that happens. One third of Realtors say they've had at least one contract scuttled in December, November and October, according to the Realtors' group. That's up from 18 percent of Realtors in September.
Still, the increase in contract signings is another indication that the troubled housing market improved at the end of last year going into 2012.
Joshua Shapiro, chief U.S. economist at MFR, said the recent trend was "heartening." But he added that further gains would be needed to reduce the millions of unsold foreclosed homes sitting idle on the market.
Homes are the most affordable they've been in decades. Long-term mortgage rates are at historic lows and prices in most metro areas have tumbled since late 2006.
Yet 2011 totals set to be released Thursday will almost certainly show that it was the worst year for new-home sales in history. Sales of previously occupied homes finished just barely ahead of 2008's dismal figures — the worst yearly showing since 1997.
Americans are holding off buying a home for a number of reasons. High unemployment and weak job growth have deterred many potential buyers. Loans are harder to come by. Lenders are requiring bigger down payments and strong credit scores to qualify.
Even those with good credit and stable finances are hesitant to buy out of concern home prices will keep falling.