The Pending Home Sales Index (PHSI) fell 4.3 percent to 101.7 in December, the sharpest month-over-month drop since April, the National Association of Realtors reported Monday. Economists had expected a smaller 0.3 percent decrease to 106.1 from November’s originally reported 106.4. The November index was revised down to 106.3.

The December index reading was the lowest since September.

The PHSI is a supposed to be a leading indicator of completed transactions, though it’s not always accurate. The index rose in eight months in 2012 (on a two-month lag), but existing home sales rose in only six. Following the 5.5 percent drop in pending sales in April, existing home sales in June fell 250,000, the steepest monthly decline in 2012.

Nonetheless, the NAR expressed optimism, noting the index was above year-ago levels for the 20th straight month in December.

NAR economist Lawrence Yun blamed a tight inventory for the weakening index.

“The supply limitation appears to be the main factor holding back contract signings in the past month,” he said, adding a separate NAR survey “shows that buyer foot traffic is easily outpacing seller traffic.”

Indeed, the inventory of homes for sale dropped sharply in December, according to the NAR’s home sales report released last week, falling to 1,820,000. The months’ supply of homes for sale—computed against the sales pace—dropped to 4.4 months in December, the lowest since May 2005, when it was 4.3.

Yun acknowledged price may be another factor holding down sales.

“Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options,” he said.

The month-over-month trend in sales correlates inversely with the movement in the median price—that is, when the median price rises, sales dip, as happened four times in 2012; in the four months in which the median price dropped, sales rose.

The PHSI in the Northeast fell 5.4 percent to 78.8 in December but was 8.4 percent higher than December 2011. In the Midwest, the index rose 0.9 percent to 104.8 in December and was 14.4 percent above a year ago. Pending home sales in the South declined 4.5 percent to an index of 111.5 in December but were 10.1 percent higher December 2011. In the West, the index fell 8.2 percent in December to 101.0 and was 5.3 percent below a year ago.

The parallel new home sales report issued last Friday by the Census Bureau and the Department of Housing and Urban Development showed contracts to purchase new homes fell 7.3 percent in December to 369,000, the sharpest monthly drop in almost two years.

The PHSI is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined, as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 a.m. and again at 11:45 a.m. Eastern time.