Pending sales of existing homes in U.S. dropped 1.3% in July

Fewer Americans signed contracts in July to buy previously owned homes, a sign that rising mortgage rates are starting to slow momentum in the housing market.

The index of pending home sales dropped 1.3%, the most this year, after a 0.4% decrease in June, figures from the National Association of Realtors showed today in Washington. Economists forecast no change in the gauge from the month before, according to a median estimate in a Bloomberg survey.

Mortgage rates at a two-year high and a limited number of existing homes are pushing some prospective buyers out of the market, threatening to slow the pace of the recovery in real estate. Improvements in employment and income growth would help provide additional fuel for housing, which has been a source of strength for the economy.

“Clearly the recent uptick in interest rates is having a more significant impact on purchase decisions in the housing space,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “It takes a little bit of wind out of the expected pace of the housing sector recovery.”

Estimates in the Bloomberg survey of 38 economists for pending home sales ranged from a decline of 3% to an increase of 5.3%.

The Standard & Poor’s Supercomposite Homebuilding Index declined 1.1% at 10:05 a.m. in New York. The S&P 500 rose less than 0.1% to 1,631.01 after dropping to an eight- week low yesterday amid concern over a possible military strike against Syria.

The Realtors’ report showed purchases increased 8.6% from July 2012 on an unadjusted basis.

Sales Index

The pending sales index was 109.5 on a seasonally-adjusted basis, the lowest in three months. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the NAR.

“The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown,” the group’s chief economist Lawrence Yun said in a statement. “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.”

Three of four regions showed a decrease from a month earlier, led by a 6.5% drop in the Northeast. They fell 4.9% in the West and 1% in the Midwest. Pending sales climbed 2.6% in the South.

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