U.S. pending home sales drop the most since early 2018

Contract signings to purchase previously owned U.S. homes fell in July by the most since early 2018, indicating a pause in buyer interest even against a backdrop of falling mortgage rates, a firm job market and steady income gains.

The National Assn. of Realtors’ index of pending home sales decreased 2.5% from the previous month, data from the group showed Thursday. The median forecast in Bloomberg’s survey called for no change. Compared with a year earlier, contract signings were up 1.7% on an unadjusted basis, the most since early 2017.

Signings decreased in all four regions of the nation, led by a 3.4% drop in the West. Pending sales in the South, the biggest region, decreased 2.4%.

Even with the monthly decline, the index has steadily improved since the end of last year. The cheapest mortgage rates in nearly three years and a jobless rate hovering around five-decade lows hold the potential for further strength in coming months. Recently released July data show contract closings on existing-home sales rose to their highest level since February, and construction starts of single-family dwellings were the strongest in six months.

Pending home sales are often considered a leading indicator of existing-home purchases and a measure of the health of the residential real estate market in coming months.

A separate report out Thursday, on gross domestic product, showed housing construction shrank for the sixth quarter in a row. Residential investment shrank at a 2.9% pace in the second quarter, revised down from an initially reported as a 1.5% drop.

“Super-low mortgage rates have not yet consistently pulled buyers back into the market,” Lawrence Yun, the National Assn. of Realtors’ chief economist, said in a statement. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes.”