As rising mortgage rates begin to exert a drag on the housing market, pending home sales fell more than expected in July, according to the National Association of Realtors.
In a report released Wednesday, NAR said that after a June dip of 0.4%, its pending home sales index fell an additional 1.3% in July. Economists had expected the index to fall in July, but had predicted a smaller drop of about 1.0%. A pending home sale is one in which a contract has been signed but the sale has not yet been closed.
The index is still up by 6.7% from July of 2012, making this July the 27th straight month of year-over-year growth. NAR Chief Economist Lawrence Yun said the month-over-month decrease isn’t yet cause for alarm, but rising interest rates could cause a more serious drag in the future – particularly in areas with higher home values.
"The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown," Yun said. "However, higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West. More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems."