Pending home sales slowed in August, with tight inventory conditions, higher interest rates, rising home prices and continuing restrictive mortgage credit impacting the market, according to the National Association of Realtors.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, eased 1.6 percent to 107.7 in August from a downwardly revised 109.4 in July, but remains 5.8 percent above August 2012 when it was 101.8; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 28 months.

Lawrence Yun, NAR chief economist, said the decline was expected following elevated levels of closed existing-home sales at the end of summer. “Sharply rising mortgage interest rates in the spring motived buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month,” he said. “Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead.”

The PHSI in the Northeast rose 4.0 percent to 84.8 in August, and is 5.1 percent above a year ago. In the Midwest the index declined 1.4 percent to 111.6 in August, but is 13.8 percent higher than August 2012. Pending home sales in the South fell 3.5 percent to an index of 116.9 in August, but are 3.7 percent above a year ago. The index in the West declined 1.6 percent in August to 106.9, but is 1.7 percent higher than August 2012.

Although total existing-home sales this year will be up about 11 percent to nearly 5.2 million, little change is seen in 2014, with sales forecast to increase less than 1 percent. The national median existing-home price should rise 11 to 12 percent for all of 2013, easing to an increase of 5 to 6 percent next year, with general improvement expected in inventory supplies.

The National Association of Realtors, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries. For additional commentary and consumer information, visit www.houselogic.com and http://retradio.com. 

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.