Pending home sales dropped off in June after reaching their highest level in more than six years as rising mortgage interest rates began to impact the market, according to the National Association of Realtors.
The Pending Home Sales Index fell 0.4% to 110.9 in June after being downwardly revised to 111.3 in May. While that’s a drop off from the previous month, it is still 10.9% higher than June 2012’s score of 100.
Higher home prices and the rise in interest rates is beginning to impact home affordability—especially in high-cost regions, according to Lawrence Yun, chief economist at NAR.
“Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” he said. “The persistent lack of inventory also is contributing to lower contract signings.”
The index’s data reflects contracts, not closings, NAR notes, and not all contracts go to closing. While closings may decrease somewhat in upcoming months, numbers are expected to remain better than last year.
“There are some homebuyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates. Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June,” Yun said. “Closed sales may edge down a bit in the months ahead, but they’ll stay above year-ago levels.”
Regionally, the Pending Home Sales Index stayed the same in the Northeast from May, and at 87.2 is 12.2% higher than one year ago. The Midwest index slipped 1% to 114.3% in June, nearly 20% higher than the 2012 index.
The South’s index had the highest drop, down 2.1% from May, but still nearly 10% higher than June 2012 at 118.3. The West index was the only to record a monthly rise, up 3.3% in June to 114.2, and 4.4% above the previous year.
NAR projects existing-home sales to rise more than 8% in 2013, based on year-to-date sales activity and stable contract signing expected through the rest of the year.
Written by Alyssa Gerace