Sales of existing homes may fall in the coming months as fewer buyers signed contracts in August to purchase a house.
Pending home sales fell 1.6 percent last month, following a 1.4 percent drop in July that was worse than initially reported, according to the National Association of Realtors. Pending sales are still 5.8 percent higher than last year.
Existing home sales, the largest category of U.S. home purchases, records a sale on the change of ownership at the closing. These sales rose to an annual rate of 5.48 million in August, the highest pace since February 2007.
The contracts to purchase the homes recorded as sales in August, were singed in June and July. The closing normally take place within two months of the signed contract. If fewer contracts are signed there will necessarily be fewer home purchases. A small percentage of signed contracts never close, usually due to the inability of the prospective buyer to secure a mortgage.
Higher mortgage rates and higher home prices are weighing on home affordability and high unemployment and underemployment have kept potential buyers from the market. The nationwide average rate on a fixed 30-year mortgage has gone from 3.40 percent in early May to 4.67 percent in the first week of September. The rate was 4.29 percent yesterday according to Bankrate.com. Realtors have also reported a steep drop in buyer traffic last month.
Chief Market Strategist