An early indicator of home sales suggests market activity should continue to increase in the coming months as the nation's housing stock rebuilds.

The National Association of Realtors (NAR) reported Thursday a 3.3 percent monthly increase in its Pending Home Sales Index for July, putting the index at 105.9. With July's increase, the index has now risen for four of the last five readings, seeing a slight retreat in June.

Though pending home sales were down 2.1 percent compared to a year ago, July's figure was the highest since August 2013 and was the third straight month in which the index measured above 100, a value NAR considers to be an average level of contract activity.

NAR Chief Economist Lawrence Yun said sales activity benefited from increasingly favorable conditions for buyers in the housing market.

"Interest rates are lower than they were a year ago, price growth continues to moderate and total housing inventory is at its highest level since August 2012," Yun said. "The increase in the number of new and existing homes for sale is creating less competition and is giving prospective buyers more time to review their options before submitting an offer.

"More importantly, steady job additions to the economy are helping family finances and giving them added confidence to enter the market," he added.

Total for-sale housing inventory in July was an estimated 2.37 million existing homes, according to the group.

Three of the four census regions showed sizable gains in pending sales, including the Northeast (6.2 percent), the South (4.2 percent), and the West (4.0 percent). The Midwest, meanwhile, saw a slight decline, posting a 0.4 percent drop.

On an annual basis, the Northeast was the only region to report higher pending sales, coming in with an 8.3 percent improvement.

NAR's pending sales index comes a week after the group reported strong existing-home sales for July. Sales that month were at an adjusted annual rate of 5.15 million, the strongest so far this year. For the entire year, NAR predicts existing-home sales to total 4.98 million, down 2.1 percent from last year.