As the National Association of Realtors® (NAR) said it had anticipated, pending home sales eased in August falling what may have been accelerated activity earlier in the summer.  NAR said tight inventory conditions, higher interest rates, rising home prices, and continuing restrictive mortgage credit all played a role in the lower August Pending Home Sales Index. 

The index dipped 1.6 percent in to 107.7 from a revised 109.4 in July.  Still it continued its 28 month streak of annual increases and was up 5.8 percent above its August 2012 level of 101.8.

The index is a forward-looking indicator based on home purchase contracts not closings.  Pending sales are generally expected to close within one to two months of contract signing.

Lawrence Yun, NAR chief economist, said the decline was expected following elevated levels of closed existing-home sales at the end of summer. "Sharply rising mortgage interest rates in the spring motived buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month," he said. "Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead."

NAR is projecting that by year-end existing-home sales will total nearly 5.2 million, an 11 percent increase from 2012 but it sees little change in 2014, perhaps less than 1 percent.  The national median existing-home price should rise 11 to 12 percent for all of 2013, easing to an increase of 5 to 6 percent in 2014 as housing inventories improve.

The Pending Home Sale Index rose 4.0 percent in the Northeast to 84.8 in August, and is 5.1 percent above a year ago. In the Midwest the index declined 1.4 percent to 111.6 compared to July but is 13.8 percent higher than August 2012.  Pending home sales in the South fell month-over-month by 3.5 percent to 116.9 but remain 3.7 percent above a year ago. The index in the West declined 1.6 percent in August to 106.9, but is 1.7 percent higher than August 2012.

The Pending Home Sales Index is based on a large national sample typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.