NEW YORK (TheStreet) -- Contracts signed to purchase previously owned homes declined once again in August, as demand for homes cooled.
The National Association of Realtors said its Pending Home Sales Index fell 1.6% to 107.7 in August from 109.4 in July, although the index was 5.8% above August 2012.
Economists polled by Bloomberg were expecting pending home sales to fall 1% from the previous month.
In July, pending home sales declined 1.3%.Pending home sales are a leading indicator of existing-home sales activity, as it measures contracts signed during the month. A sale is usually closed within one or two months from the time the contract is signed. Rising interest rates, a persistent shortage of inventory and rapidly rising prices have cooled demand for homes. NAR economist Lawrence Yun said the decline was expected after the elevated levels of existing home sales closed 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." According to national real estate brokerage Redfin, 27.9% of homes went under contract within two weeks in August, down from 29% in July and from the rate's peak of 33.7% in April. So the frenzy in the market is waning. Competition for homes is also declining. In August, 60.5% of offers written by Redfin agents across the country faced bidding wars, down from 63.3% in July and from 63.5% in August 2012. Pending Home Sales declined the most in the South, dropping 3.5% from the previous month. In the Midwest and the West, it declined by 1.4% and 1.6% respectively. In the Northeast, pending sales actually rose 4%. Existing home sales this year could be nearly 5.2 million homes, up about 11% from the previous year. However, sales volume for 2014 is expected to slow, rising about 1%. Meanwhile prices are likely to continue to rise through 2014 though at a more moderate pace -- NAR predicts another 5% to 6% rise -- because of a shortage of inventory.