The number of contracts to buy previously owned U.S. homes was little changed in December after a record plunge, indicating a renewed tax credit will take time to revive sales.

The index of purchase agreements, or pending home sales, rose 1 percent after a 16 percent drop in November that was the largest since records began in 2001, the National Association of Realtors announced in Washington. Compared with a year earlier, pending sales rose 11 percent.

Demand jumped last year as first-time buyers rushed to qualify for an $8,000 government incentive due to expire Nov. 30. The subsequent renewal and expansion of the initiative may help underpin sales, cushioning the damage from mounting foreclosures and a possible increase in mortgage rates as Federal Reserve policy makers withdraw from the market.

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The index of purchase agreements, or pending home sales, rose 1 percent in December after a 16 percent drop in November that was the largest since records began in 2001.

"We've had a lot of volatility because of the tax incentive," said David Sloan, a senior economist at 4Cast Inc., a New York forecasting firm, who correctly projected the increase. "We're in a moderately improving underlying trend. There is some pent-up demand for housing from very weak levels. Housing will be a source of support for the economy in the coming year. Things will slowly get better."

The real estate industry hopes the recovery will continue, and Mike Larson, a real estate analyst with Weiss Research, said the index "sets the stage for a more positive spring selling season."

But the industry has to overcome significant challenges, such as high unemployment, rising foreclosures and tight lending standards.

"The result? We'll likely just muddle through instead of witness a V-shaped recovery like those that followed previous housing busts," Larson said.

President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months.

About 2.4 million households will take advantage of the credit this year, according to a projection by Lawrence Yun, the real estate group's chief economist. Yun anticipates existing home sales will rise to 5.6 million this year from 5.16 million in 2009.

Another provision in the legislation allowed builders to use losses incurred in 2008 and 2009 to recoup taxes on profits going back as many as five years, three more years than usual. Lennar Corp., KB Home and Ryland Group Inc. are among the construction companies that have reported quarterly profits because of the tax refunds.

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