An index measuring contracts to buy previously owned U.S. homes unexpectedly declined in July, signaling that buyers are balking at higher prices and a lack of choices in some regions, according to data released Aug. 29 from the National Association of Realtors in Washington.
The index dropped 0.7% month-to-month to 106.2 after a 1% gain in June. The gauge fell 0.5% year-over-year on an unadjusted basis after a 4% year-over-year drop in June.
Affordability constraints, such as rising mortgage rates, tepid wage gains and rising prices amid tight supplies, continue to restrain prospective buyers even with a strong job market and tax cuts.
The decline reflected weakness in the South and West, which the industry group said included some “overheated” markets. The group highlighted Silicon Valley, Denver, Seattle and Nashville, Tenn., as areas seeing a rise in listings from a year earlier.
The report is the latest sign of cooling in the U.S. housing market. An index of home prices across 20 U.S. cities increased in June at the slowest pace in nearly two years, data Aug. 28 showed.
The Realtors group maintained its forecast for a decrease in existing-home sales from 2017, expecting 5.46 million transactions, which would be the first annual decrease since 2014. At the start of the year, the group had projected a slight increase in sales.
“Many of the most overheated real estate markets — especially those out West — are starting to see a slight decline in home sales and slower price growth,” NAR Chief Economistr Lawrence Yun said in a statement. “Multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”
The index of pending sales fell 1.7% in the South and 0.9% in the West, while increasing 1% in the Northeast and 0.3% in the Midwest.
Economists consider pending sales a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a deal closes, typically a month or two later.