Rising interest rates and home prices are blamed for a slight dip in the number of pending sales in June the National Association of Realtors® (NAR) said today.  NAR's Pending Home Sales Index (PHSI) slipped 0.4 percent to 110.9 in June compared to a revised index of 111.3 in May.  The May Index was originally reported at 12.1 percent but even with the downward revision it remains the highest PHSI since December 2006 when it was 112.8.   The June Index is 10.9 percent higher than in June 2012 when it was 100.0. 

The PHSI reflects signed home purchase contracts and is a leading indicator of home sales.  Contracts are generally expected to become closed transactions within two months.  This does not always happen, however, and Lawrence Yun, NAR chief economist, said some sales cancellations in June could be linked to higher rates.

He noted that higher home prices and interest rates are beginning to impact affordability, notably in high-cost regions.  "Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," he said.  "The persistent lack of inventory also is contributing to lower contract signings."

He added, "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.  This, he said, apparently happened with some sales scheduled to close last month.  "Closed sales may edge down a bit in the months ahead,' Yun continued, "but they'll stay above year-ago levels."

Contract signings were variable by region.  The PHSI in the Northeast was unchanged at 87.2 in June but is 12.2 percent higher than a year ago.  The index slipped in both the Midwest and the South, down 1.0 percent to 114.3 in the former and 2.1 percent to 118.3 in the latter.  On a year-over-year basis both were significantly higher, 19.5 percent in the Midwest compared to June 2012 and 9.5 percent higher in the South.  The strongest monthly performance was in the West where the index rose 3.3 percent in June to 114.2, and is 4.4 percent above June 2012.

Based on year-to-date sales activity, and stable contract signings expected for the balance of the year, NAR projects existing-home sales to rise more than 8 percent in 2013.  Inventory shortages will lead the median price to rise by nearly 11 percent this year.

The PHSI is based on a large national sample representing about 20 percent of transactions for existing sales.  An index of 100 is equal to the average level of contract activity in 2001, the year the index was creased.