Pending home sales moved lower in July, declining by 2.5 percent. After two consecutive months of gains the National Association of Realtors'® (NAR's) Pending Home Sales Index (PHSI), a leading indicator of existing home sales, was expected to decline, but the drop from the June level of 108.3 to 105.6 was greater than expected.  The PHSI, based on new contracts for existing home purchases, is now down 0.3 percent on a year-over-year basis. NAR said the downturn was seen in all four regions, with the greatest impact in the West.

Analysts polled by Econoday forecast the index would dip by 0.3 percent. The range of estimates was -1.0 percent to 0.5 percent.

"Super-low mortgage rates have not yet consistently pulled buyers back into the market," said Lawrence Yun, NAR chief economist. "Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes."

Yun said he expects GDP growth to ease to 2.0 percent in 2019 and 1.6 percent in 2020, but growth predictions are somewhat uncertain due to trade tensions. With slower economic growth, interest rates will remain low, he said.

Though home sales will get a short-term boost from lower mortgage rates, existing home sales are likely to be flat at 5.34 million in 2019 given the level of sales in the first seven months of the year, Yun said.  Amid tight inventory conditions, the median price of existing home sales will continue increasing, but at a slower pace of 4 percent in 2019, to $269,000, and 3 percent in 2020, to $278,500.

Low inventory numbers impact the nation's overall economy, according to Yun. "A boost to home building would greatly improve economic growth," he said. "More free market prices on construction materials without government interference about where homebuilders have to get their supply will also help produce more and grow the economy. The housing industry cannot grow without more supply."

The PHSI was at 93.0 in the Northeast region in July, a decrease of 1.6 percent from June.  It is 0.9 percent lower than in July 2018. In the Midwest, a 2.5 percent decline took the index to 101.0, 1.2 percent below its year-earlier level.

Pending home sales in the South decreased 2.4 percent to an index of 122.7 in July, but that number is 0.1 percent higher than the prior July.  The greatest decline was in the index for the West, down 3.4 percent although it remained up 0.3 percent year-over-year.

The PHSI is a leading indicator of existing home sales and is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the Index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.