Pending home sales decreased in December, but remained well above levels recorded a year earlier, the National Association of Realtors reports.

According to the industry group's Pending Home Sales Index, the number of pending transactions fell by 3.5 percent in December to 96.6. The level reached 100.1 the previous month, but hovered at 91.5 in December 2010. 

"Even with a modest decline, the preceding two months of contract activity are the highest in the past four years outside of the homebuyer tax credit period," said NAR chief economist Lawrence Yun. "Contract failures remain an issue, reported by one-third of Realtors over the past few months, but home buyers are not giving up."

Regionally, the PHSI showed that pending home sales in the Northeast fell by 3.1 percent to 74.7, while the Midwest index spiked 4 percent to 95.3. In addition, pending sales in the South fell 2.6 percent to an index level of 101.1, while the West slipped 11 percent to 107.9. It was noted that every region, except the Northeast, saw annual improvements in their pending home sales. 

The report also indicated that the pairing of low mortgage rates and cheaper home prices has made purchasing property the most affordable it has been in many years. However, it was noted that current lending conditions is making it difficult for many prospective homebuyers to get approved for home loans. As a result, there was a slip in mortgage application activity, the Mortgage Bankers Association reports.

According to the MBA's Weekly Mortgage Application's Survey, application activity fell by 5 percent during the week ending January 20 on a seasonally adjusted basis. In addition, the Purchase Index decreased 5.4 percent from a week earlier.

Meanwhile, the survey indicated that refinancing activity also edged lower during the week after falling to an 81.3 percent share of all mortgage application activity. The previous week, refinancing accounted for 82.2 percent of applications.

Specifically, among borrowers who applied for refinancing, 56.6 percent of them requested a 30-year fixed-rate mortgage, while 24.3 percent applied for a 15-year FRM. With mortgage rates currently hovering near historic lows, it comes as no surprise that many households are attempting to refinance their home loans in order to make lower monthly payments.

However, with many homeowners currently riddled with negative equity, it has become difficult for many of them to refinance. To answer the call, government-sponsored initiatives, such as the Home Affordable Refinance Program and the Home Affordable Modification Program, have been established to help more borrowers refinance their mortgages.

Meanwhile, in order to further assist even more households, President Barack Obama announced in his State of the Union Address that he intends to present additional legislation that would help even more homeowners reduce their monthly mortgage payments.

"It's going to help homeowners who are struggling and it's likely to be a first step to really opening up the market to more normal credit standards," Columbia Business School professor Christopher Mayer told Bloomberg regarding the president's announcement.

The Obama administration plans to send legislation to Congress that could save borrowers up to $3,000 per year in payments by allowing them to tap into lower mortgage rates. 

Additionally, the U.S. central bank also announced that it plans to keep downward pressure on 30- and 15-year fixed-rate mortgages to help even more borrowers qualify for more affordable home loan options.