The last time pending home sales rose that much, driven by pandemic buying, was in June 2020.

Pending home sales beat analysts' estimates. Analysts surveyed by the Wall Street Journal had expected the pending home sales index to rise 0.9%.

Pending home sales are deals where existing homes are under contract but not closed.

Economists see it as an indicator of the direction of existing home sales in the months ahead.

But a rebound in mortgage rates and a decline in mortgage applications point to weak home sales in the coming weeks.

Key detail: Transactions were down 24.1 percent compared with the same period last year.

On a monthly basis, pending sales rose in all four regions, led by a 10.1 percent increase in the West in January. The NAR attributed the increase to falling home prices.

However, pending home sales in the West also saw their biggest drop since January last year, falling 29.3 percent.

As of Monday morning, the average rate on a 30-year fixed-rate Mortgage was 6.88 percent, according to Mortgage News Daily.

The NAR expects existing home sales to fall 11.1% to 4.47 million units in 2023. They expect home sales to improve only in 2024, when sales will rise 17.7 percent to 5.26 million.

The trade group also expects new home sales to fall 3.7 percent in 2023, before surging 19.4 percent in 2024.

The big picture: Falling mortgage rates have spurred eager buyers into action, driving up sales.

But the strength of the U.S. economy is helping push mortgage rates up again, and buyers who didn't take action are back in their seats.

The NAR said slowing demand would eventually hit home prices. The group expects existing home prices nationwide to fall 1.6 percent to $380,100 by 2023.