The number of people who committed to buy homes declined in July, as higher interest rates are showing their first signs of taking a toll on the housing market.
Pending home sales were down a seasonally adjusted 1.3 percent for the month, according to new figures from the National Association of Realtors (NAR). At the same time, they remained 6.7 percent above their July 2012 level, making it 27 consecutive months that pending sales have increased on an annual basis.
The decline in signed sales contracts comes two months after mortgage rates began moving off their historic lows in May, increasing by a full percentage point in a matter of weeks.
West showing signs of trouble
The slowdown doesn't appear to signal that the housing recovery may be stalling out, according to NAR Chief Economist Lawrence Yun, who said the effects appear to be uneven.
The reduction in pending sales was most apparent in the Northeast and West, where signed contracts were down by 6.9 percent and 4.9 percent for the month, respectively. Pending sales were down only 1.0 percent in the Midwest, and actually showed a 2.6 percent monthly gain in the South.
"Higher mortgage interest rates and rising home prices are impacting monthly contract activity in the high-cost regions of the Northeast and the West," Yun said. "More homes clearly need to be built in the West to relieve price pressure, or the region could soon face pronounced affordability problems."
Signed sales agreements in the West are actually down slightly compared to last year, with an annual decline of 0.4 percent. The Midwest has been the nation's strongest housing market during that time, with pending sales up an annual 14.5 percent since July 2012, followed by the South with a 7.7 percent gain. Pending sales in the Northeast showed an annual increase of 3.3 percent in July.
The NAR is projecting a 10 percent increase in existing home sales for 2013, to 5.1 million units, increasing to 5.2 million in 2014. It predicts an 11 percent increase in home prices for the year, moderating to a 5 percent to 6 percent rise in 2014 as new home construction begins to kick in.