The number of contracts signed for purchases of previously owned homes rose again in December, according to data released by the National Association of Realtors (NAR) Thursday.

The trade group’s pending home sales index increased 2.0 percent compared to its November reading, which was revised downward.

The index is based on contracts signed in December, as opposed to closings. NAR says this forward-looking indicator typically signals where existing-home sales levels should be within one or two months.

It marks the third consecutive month NAR’s gauge of home sales to come has climbed higher. December’s gain was larger than analysts were forecasting.

Lawrence Yun, NAR’s chief economist, credits high affordability conditions and overall economic improvement for the steady increases.

“Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions,” Yun said.

According to Yun, mortgage rates should rise only modestly in the months ahead, so conditions should remain favorable for buyers with good credit. He also says stable home prices should continue into 2011 as long as there is sufficient demand to absorb inventory.

“The latest pending sales gain suggests activity is very close to a sustainable, healthy volume of a mid-5 million total annual home sales,” Yun said. “However, sales above 6 million, as occurred during the bubble years, is highly unlikely this year.”

Looking at the regional numbers, pending sales were up in every part of the country except the West.

There, the index fell 13.2 percent compared to November and is 10.7 percent below where it was a year ago. Contract signings in the western part of the country are exhibiting dramatic swings. Just last month, NAR reported that the West region posted the biggest month-to-month jump in pending sales, up 18.2 percent.

NAR’s pending home sales index for the Northeast increased 1.8 percent in December but is down 5.3 percent from December 2009.

In the Midwest the index rose 8.0 percent from November to December but is 5.1 percent below a year earlier.

Pending home sales in the South jumped 11.5 percent last month and breaking from the pack, are 1.7 percent above December 2009.