Sales of previously owned US homes and the index of leading indicators have exceeded forecasts amid signs that the country’s real estate market is improving.

Purchases of existing houses jumped 12% in December to a 5.28 million annual rate, the latest data from the National Association of Realtors shows.

‘December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery. The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level,’ said NAR chief economist Lawrence Yun.

‘The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain,’ he added.

NAR said the median existing home price in December was $168,000, down 1% from a year earlier, and hurt the number of distressed sales that are normally discounted 10% to 15%, according to Yun. The level of distressed home sales last month rose to 36% of the existing home market, up from 33% in November and 32% a year earlier.

NAR said all cash sales have remained consistently high for the past six months at nearly 30% of the market. In December, all cash transactions accounted for 29% of all sales down from 31% in November yet higher than 22% a year earlier.

Sales of single family homes rose 12% in December from the prior month but were 2.5% lower than a year earlier. Existing condo and co-op sales increase 16.4% from November yet remain 5.2% below the 2009 pace, according to the NAR figures.

But the NAR said that borrowing costs are set to rise and this could push people into buying sooner rather than later. As signs of stronger economic growth push up borrowing costs, homebuyers may be rushing into the market to lock in current mortgage rates before they climb further.

Mortgage interest rates rose steadily during the last few weeks of 2010 and the average rate for a 30 year, fixed rate mortgage was 4.71% in December up from 4.3% a month earlier.

'Historically low mortgage interest rates, stable home prices and pent up demand are drawing home buyers into the market. Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010,’ said NAR President Ron Phipps.

However, the jump in rates provides some urgency, according to Yun. Buyers, returning to the housing market after the government tax credit expired in the middle of 2010, may also be taking advantage of cheaper homes, he added.

Developers are also hopeful of a rebound, albeit a slow one. Lennar, the third largest US homebuilder by revenue, has reported fourth quarter profits that beat analyst estimates on cost cuts and earnings from its distressed investing unit.

‘The housing recovery will traverse a long and bumpy road. Still, we’ve seen some early signs of gradual stabilization in the market,’ said Lennar’s chief executive officer Stuart Miller.

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