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Pending Home Sales Fall 1.3% in July as Higher Rates Slow Demand

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NEW YORK (TheStreet) -- Contracts to purchase previously owned homes declined in July, as buyers feeling the impact of rising interest rates retreated from the housing market.

The National Association of Realtors on Wednesday said its Pending Home Sales Index fell 1.3% to 109.5 in July from 110.9 in June, although the index was 6.7 % above July 2012.

Economists were expecting pending home sales to fall 1%.

Pending home sales are a leading indicator of existing-home sales activity, as it measures contracts signed during the month. A sale is usually closed within one or two months from the time the contract is signed.

Recent data suggests thatbuyer demand is slowing down as the rapid rise in interest rates and higher home prices have dented affordability. Buyers are also weary from the bidding wars that have been prevailing due to an acute shortage of inventory.

"The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown," said Lawrence Yun, chief economist at the NAR. "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."

The Pending Home Sales Index fell 6.5% in the NorthEast and 4.9% in the West. Contract activity fell 1% in the MidWest. It actually rose 2.6% in the South.

According to Yun, the West needs to see more new homes added to the market. If not, it could face serious affordability problems.

-- Written by Shanthi Bharatwaj in New York.

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