After reaching the highest level in more than six years in May, U.S. pending home sales continued to edge down for the second consecutive month in July, with higher mortgage interest rates impacting the market, a leading U.S. industry group reported on Wednesday.
The National Association of Realtors (NAR) said its index of pending home sales, which measures the number of contracts that have been signed but not yet closed for purchasing previously owned homes, decreased 1.3 percent from the prior month to 109.5 in July. The estimate last month was 6.7 percent higher than the level in July 2012.
"The modest decline in sales is not yet concerning, and contract activity remains elevated, with the South and Midwest showing no measurable slowdown. 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," said NAR chief economist Lawrence Yun.
The NAR index is a forward-looking indicator of future existing home sales, since there is usually one or two months' lag between signing a contract and closing a deal.
One important challenge to the U.S. housing sector going forward will be the increase in mortgage interest rates that has occurred over the past few months -- about one percentage point. Although the increase in mortgage rates to date is not likely to completely derail the recovery in housing, there can be little doubt that the increase in rates will slow the recovery, David Stockton, a senior fellow at the Washington-based Peterson Institute for International Economics, told Xinhua.
A reading of 100 indicates an average level of sales activity in 2001, when the index started. The reading was above the 100 threshold from March 2003 to April 2007, and then sank as the country fell into a deep recession caused by the housing debacle.