Contracts to purchase existing homes in the U.S. fell more than forecast in December as higher borrowing costs and bad weather held back sales.

A gauge of pending home sales slumped 8.7 percent, the biggest decline since May 2010, after a revised 0.3 percent drop in November that was initially reported as a gain, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for the index to drop 0.3 percent.

Tight inventory and unusually cold weather discouraged prospective buyers, according to the group. Further gains in hiring, household wealth and consumer confidence would help boost the housing recovery and give greater momentum to the economy.

“Weather has been playing havoc with the housing numbers,” Scott Anderson, chief economist of Bank of the West in San Francisco, said before the report “We’re getting a bit of a cloudy picture right now. It might take a month or two before they clarify.”

Estimates in the Bloomberg survey of 38 economists ranged from a decline of 5.3 percent to an advance of 3.5 percent. The December decrease was the biggest since the expiration of a government tax credit in April 2010.

Purchases dropped 6.1 percent from the year prior on an unadjusted basis after a 4.4 percent decrease in the 12 months that ended in November, the association reported.

The pending sales index was 92.4 on a seasonally-adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home- buying traffic, according to the Realtors group.

By Region

All four regions showed a decrease from November, led by a 10.3 percent slump in Northeast. Contract signings declined 9.8 percent in the West, 8.8 percent in the South and 6.8 percent in the Midwest.

Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.

“Unusually disruptive weather across large stretches of the country in December force people indoors and prevented some buyers from looking at homes or making offers,” NAR chief economist Lawrence Yun said as the report was released.

Federal Reserve policy makers cut the pace of bond buying for a second straight meeting yesterday, uniting behind a strategy of gradual withdrawal from Ben S. Bernanke’s unprecedented easing policy as Janet Yellen prepares to succeed him as chairman. While the recovery in housing has “slowed somewhat,” economic activity has picked up, policy makers said after concluding their two-day meeting.

Home Prices

Home prices continue to rise. The S&P/Case-Shiller index of property prices in 20 cities climbed 13.7 percent in November from a year earlier, the biggest 12-month gain since February 2006.

Mortgage rates are rising along with prices, reducing affordability. The average rate for a 30-year, fixed mortgage was 4.39 percent in the week ended Jan. 23, up from 3.42 percent a year earlier.

Still, after two years of rapid growth, real estate agents and homebuilders continue to see opportunity in the market, said Donald Tomnitz, president and chief executive officer of D.R. Horton Inc., the largest U.S. homebuilder by revenue. The company’s weekly sales picked up early this month, which could be a sign of strong demand to come in the spring. D.R. Horton, based in Fort Worth, Texas, this week reported its most profitable first quarter since 2006 as it raised prices.

“Housing market conditions continue to improve,” Tomnitz said on a Jan. 28 earnings call. “We personally are counting on higher sales this year than a year ago.”