The Pending Home Sales Index ended 2016 on a high note with a 1.6 percent increase to 109.0 in December, up from 107.3 in November, the National Association of Realtors said.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined by the NAR. The PHSI, a forward-looking indicator based on contract signings of existing homes, is 0.3 percent above last December's 108.7.

Contract activity was mixed throughout the nation, as pending sales in December jumped 5.0 percent in the West and 2.4 percent in the South. However, these gains were somewhat offset by a 1.6 percent decline in the Northeast and a 0.8 percent dip in the Midwest.

"The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs," said Lawrence Yun, chief economist for the NAR. "Sales will struggle to build on last year's strong pace if inventory conditions don't improve."

The NAR expects housing starts to jump to around 1.26 million units, an increase of 7.9 percent from 2016 (1.16 million). Existing-home sales are forecast to be around 5.54 million this year, an increase of 1.7 percent from 2016, which was the best year of sales since 2006, Yun said. A PHSI report for January will be released Feb. 27.