A report released by the National Association of Realtors on Thursday showed a much steeper than expected drop in U.S. pending home sales in the month of August.
NAR said its pending home sales plunged by 7.1 percent to 71.8 in August after rising by 0.5 percent to a downwardly revised 77.3 in July.
Economists had expected pending home sales to decrease by 0.8 percent compared to the 0.9 percent advance originally reported for the previous month.
A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.
"Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers," said NAR chief economist Lawrence Yun.
"Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets," he added. "It's clear that increased housing inventory and better interest rates are essential to revive the housing market."
The sharp pullback in pending home sales reflected weakness throughout much of the country, with pending home sales in the South leading the way lower with a 9.1 percent plunge.
Pending home sales in the West and Midwest also tumbled by 7.7 percent and 7.0 percent, respectively, while pending home sales in the Northeast showed a relatively modest 0.9 percent decline.
"The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy," said Yun." There is no need to raise interest rates.
"Moreover, the government shutdown will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance," he added.
A separate report released by the Commerce Department on Tuesday showed a substantial pullback in new home sales in the month of August.
The Commerce Department said new home sales plummeted by 8.7 percent to an annual rate of 675,000 in August after soaring by 8.0 percent to an upwardly revised rate of 739,000 in July.
Economists had expected new home sales to decrease to an annual rate of 700,000 from the 714,000 originally reported for the previous month.
With the upward revision, the annual rate of new home sales in July was the highest since hitting 773,000 in February 2022.
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