After reaching a six-year high, pending home sales fell in June.
The decline in pending home sales is attributed to rising mortgage interest rates, which are beginning to impact the housing market, the National Association of Realtors reports.
NAR’s Pending Home Sales Index edged down 0.4% to an index score of 110.9 in June, dropping from a downwardly revised 111.3 in May. From last year, the index is up 10.9%.
"Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," said NAR chief economist Lawrence Yun.
He added, "The persistent lack of inventory also is contributing to lower contract signings."
On the upside, pending sales have been above year-ago levels for the past 26 months.
Nationwide Insurance chief economist David Berson told HousingWire that although mortgage rates tend to dampen housing demand, stronger job growth, rising numbers of households and increasing household wealth can offset rising interest rates.
"Despite an increase of about half a percentage point for mortgage rates in June, however, the index remains at a high level (other than in May, the index is at the highest level since the end of 2006)," Berson stated.
He added, "This suggests that reported home sales will remain strong for the next couple of months (especially when combined with the large jump in the Index in May)."
Meanwhile, not all pending sales contracts are closing.
The issue is that 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 mind if the rate rises too much, which apparently happened with some sales scheduled to close in June," Yun explained.
As a result, closed sales are expected to edge down in the months ahead, but will stay above year-ago levels, according to NAR's chief economist.
The PHSI in the Northeast remained unchanged at 87.2 in June but is 12.2% above year ago levels.
In the Midwest, the index slipped 1% to 114.3 in June and is 19.5% higher than in June 2012.
Pending home sales in the South fell 2.1% to an index score of 118.3 in June, up 9.5% from a year ago.
Meanwhile, the index for the West jumped 3.3% to 114.2 and is 4.4% above year ago levels.
Existing-home sales are expected to rise more than 8% for the remainder of the year.
Additionally, investor shortages will lead the median home price to rise by nearly 11% this year, NAR concluded.