Pending home sales declined slightly in August, mirroring a similar pull-back in existing home sales announced last week.  The National Association of Realtors® (NAR) said today that its Pending Home Sale Index (PHSI) for August was 104.7, a decline of 1.0 percent from July's level of 105.8.  Existing home sales, also according to NAR, slipped 1.8 percent in August.  The month however remained the second best of 2014 for both performance measures.

The PHSI is a forward-looking indicator based on contract signings for home purchases.  Despite the slight decline in August the index is above 100, considered an average level of contract activity for the fourth consecutive month. The August index was 2.2 percent below the PHSI in August 2013.

Like the decline in existing home sales, Lawrence Yun, NAR chief economist said the easing of the PHSI was partially due to investor pull-back from the residential market.  "Fewer distressed homes at bargain prices and the acknowledgement we're entering a rising interest rate environment likely caused hesitation among investors last month," he said. "With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home."

According to NAR's Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed their purchase obtained a conventional or FHA loan. Overall, first-time homebuyers have represented less than a third of all buyers each month for the past two years.

Yun says first-time buyer participation should gradually improve despite tight credit conditions and the inevitable rise in rates. "The employment outlook for young adults is brightening and their incomes finally appear to be rising," he said. "Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years." 

All major regions experienced declines in pending sales except for the West, which rose for the fourth consecutive month, increasing by 2.6 percent to 102.1, but is still 2.6 percent below the previous August. The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but remains 1.6 percent above a year ago. In the Midwest the index fell 2.1 percent to 102.4 in August, and is 7.6 percent below August 2013.  Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago.

Yun forecasts existing-homes sales to be down 3.0 percent this year to 4.94 million, compared to 5.09 million sales of existing homes in 2013.  Home sales are expected to be stronger in the second half of the year behind improved inventory conditions, continuously low interest rates and slower price growth. The national median existing-home price is projected to grow between 5 and 6 percent this year and 4 and 5 percent next year.