An index that tracks the number of signed contracts to buy U.S. homes rose to its highest level in nearly two years last month, the latest sign the battered housing market is slowly improving.

The National Association of Realtors said Thursday that its index of sales agreements increased 4.1 percent last month to a reading of 101.4. That's the highest since April 2010, when buyers could qualify for a federal home-buying tax credit. A reading of 100 is considered healthy.

Contract signings typically indicate where the housing market is headed. There's a one- to two-month lag between a signed contract and a completed deal.

The figures "bode well for existing home sales over the next couple of months," said Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients. "We believe housing has now entered recovery."

More signings are among recent evidence of a slight pickup in the housing market. New home sales fell in March but have risen over the past year. Builders are also more confident. And some measures of home prices are stabilizing.

January and February made up the best winter for completed sales in five years. Sales fell in March, but Thursday's report suggests that drop will likely be temporary, LaVorgna said.

Even so, cancellations of sales contracts are running higher than normal, as many buyers struggle to obtain mortgages. That's made the pending home sales figure a less reliable indicator.

And a backlog of foreclosures is expected to come on the market this year, weighing on home prices. Banks are stepping up foreclosures in about half the states. The increase comes after state officials settled a dispute in February with five of the biggest mortgage lenders over foreclosure abuses.

Analysts caution that the damage from the housing bust is deep and the industry is years away from fully recovering.

Potential buyers are holding off for a number of reasons. Despite the recent job gains, unemployment remains high. Many buyers can't qualify for loans. Lenders are requiring higher credit scores and larger down payments.

And some who can qualify are hesitant to buy because they worry home prices will keep falling.