Fewer Americans signed contracts in June to buy previously owned homes, showing rising mortgage rates are beginning to restrain the housing market.
The index of pending home sales dropped 0.4 percent, less than forecast, to 110.9 in June after climbing a month earlier to the highest level since December 2006, figures from the National Association of Realtors showed today in Washington. The median forecast in a Bloomberg survey of 40 economists called for a 1 percent decline.
Lean inventories of cheaper properties and mortgage rates that have climbed about 1 percentage point since early May are making it harder for some Americans to purchase houses. At the same time, housing will probably benefit from improvement in the labor market and higher home values that encourage more listings.
“A gradual increase in mortgage rates is manageable for the housing market,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. The decline “is a bump in the road. As long as they don’t spike unexpectedly, I don’t see any real threat from current mortgage rates.”
Stocks fell after the report, with the Standard & Poor’s 500 Index declining 0.3 percent to 1,686.53 at 10:17 a.m. in New York.
Estimates in the Bloomberg survey for June pending home sales ranged from a decline of 6.5 percent to an increase of 5 percent after a previously reported 6.7 percent advance in May.
The index level for pending home sales decreased from a revised 111.3 in May on a seasonally-adjusted basis. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the Realtors group.
“Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” the group’s chief economist Lawrence Yun said in a statement. “The persistent lack of inventory also is contributing to lower contract signings.”
Economists consider pending home sales a leading indicator because they track contract signings. Existing home sales are tabulated when a contract closes, usually a month or two later.