The National Association of Realtors said Thursday that its seasonally adjusted index for pending home sales declined 1.6 per cent to 107.7 last month. The index has fallen for three straight months after reaching a 6 1/2-year high in May.
The pending home sales index measures signed contracts. Buyers typically complete sales one to two months later.
The housing market has been in recovery for the last year and a half and final home sales reached a six-year high in August, the Realtors' group said last week.
But mortgage rates have risen nearly a full percentage point since May. That helped the market in the short run, as many buyers moved to speed up purchases before rates climbed further.
The rise in closings on homes in August reflected contracts signed in June and July. Based on the decline in signed contracts, completed sales are likely to cool off in September or October.
Another obstacle for the market is a tight supply of available homes for sale. While the supply ticked up in August to 2.25 million, it remains 6 per cent lower than a year ago. That is pushing up prices and freezing out some would-be buyers.
Signed contracts are still nearly 6 per cent higher than a year earlier. Many economists say the housing recovery should withstand the recent rise in mortgage rates, which are still quite low by historical standards.
The Realtors' group forecasts that sales of previously owned homes will reach 5.2 million this year. That's 11 per cent higher than in 2012 and near levels that are considered consistent with a healthy market. But the group expects sales will likely hold at that level in 2014.
The average rate on a 30-year fixed mortgage fell this week to 4.32 per cent, down from 4.5 per cent the previous week and lowest in two months.
The drop comes after the Federal Reserve last week decided against reducing its $85-billion-a-month in bond purchases. The Fed held off after lowering its outlook for economic growth. A key reason for its decision was the sharp increase in interest rates. Pulling back on its bond purchases could have sent such rates even higher.