Pending home sales in the U.S. fell more than expected in August — notching the third consecutive month of declines — as higher borrowing costs pushed more prospective buyers to the sidelines.
The National Association of Realtors’ index of pending home sales decreased 2.0% from a month earlier, according to data released Wednesday, more than the 1.5% decline that economists in a Bloomberg survey had forecast. Year over year, pending sales were down by 24.2%.
Contract signings decreased 5.2% in the Midwest, 3.4% in the Northeast, and 0.9% in the South, but rose 1.4% in the West. Still, pending sales retracted by double-digit percentages in each region versus a year ago.
The measure, a leading indicator of the housing market's health, further underscores how high inflation and rising mortgage rates have become a destructive combination for the market, forcing potential buyers to pull back on their purchase plans.
“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” said NAR Chief Economist Lawrence Yun in a press release. “If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize.”
Mortgage rates have been rising rapidly as the Federal Reserve aggressively tries to tap down inflation by hiking its short-term benchmark rate. In August, rates slipped below 5% briefly, but they have since marched higher.
"In the beginning of August, mortgage rates were just shy of 5%, but by the end of the month they had climbed 56 basis points to 5.55%," Hannah Jones, economic data analyst for Realtor.com, said in a statement to press. "Home shoppers responded to the continued pressure on their wallets by taking another step back this month, as reflected in today’s data."
The monthly payment on a typical home with 20% down rose to $1,841 in the second quarter, according to the National Association of Realtors. That's a 32% increase, or $444 more, versus the first quarter and a 50% jump from a year earlier. Meanwhile, families spent 24% of their income on mortgage payments, a 19% increase from the previous quarter.
Yun expects the economy will continue to slow through the end of the year, with mortgage rates rising close to 7% in the coming months.
“Only when inflation calms down will we see mortgage rates begin to steady,” Yun added.
Other recent data has reflected a quickly cooling market. Existing home sales fell in August and housing prices slowed by the largest amount on record in July, the S&P CoreLogic Case-Shiller index showed Tuesday.
Sellers who are in a rush have been forced to lower their prices, while others are pulling their listings off the market. Last month, the average U.S. home sold below its asking price for the first time in almost 18 months, according to data from online brokerage Redfin.
Even home builders are chopping prices to help close sales.
"On the other side of the equation," Jones said, "sellers are feeling the softening in buyer demand and more are responding with price reductions to keep inventory moving."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv