The National Association of Realtors said Monday that sales fell 1.2 per cent last month from an annual rate of 5.14 million in May. The NAR revised down May's sales, but they were still the highest since November 2009.
Despite last month's dip, home sales have surged 15.2 per cent from a year ago. Sales have recovered since early last year, buoyed by job gains and low mortgage rates.
Still, mortgage rates have surged in recent weeks over concern that the Federal Reserve could slow its bond-buying programs later this year. The Fed's bond purchases have helped keep long-term mortgage and other rates low.
Higher mortgage rates slowed sales last month of higher-priced homes in states such as California and New York, the Realtors group said.
The average rate on a 30-year fixed mortgage leapt to 4.46 per cent by the end of June from 3.81 per cent at the end of May. The rate was 4.37 per cent last week.
That rate increase could hamper sales in coming months, economists said. But most expect housing to continue to recover, though at a slower pace.
"There's little doubt the housing market slowed in the summer as mortgage rates rose," Dan Greenhaus, chief global strategist at BTIG LLC, an institutional brokerage, said in a note to clients. "Housing is still expected to grow and contribute to economic output. It just may not be at the pace we've seen of late."
Sales of previously occupied homes in June reflect contracts that were mostly signed in April and May, when mortgage rates were lower. Rising rates can cause some signed contracts to fall through if buyers no longer qualify for mortgages at higher rates.
The one factor that's likely most holding back sales is a limited supply of homes available. Though more sellers put their homes on the market in June, the supply remained unusually low — nearly 8 per cent less than a year ago.
At the current sales pace, the number of homes for sale would be exhausted in 5.2 months. That's below the six months' supply that's consistent with a healthy housing market.
Another concern is that first-time buyers, who usually drive healthy markets, aren't participating as much in the current recovery. They made up only 29 per cent of buyers in June, below the 40 per cent that is typical. Since the housing bubble burst more than six years ago, banks have imposed tighter credit conditions and required larger down payments. That's made it harder for first-time buyers to qualify for mortgages.
Still, mortgage rates remain relatively low and home prices remain affordable despite rising in the past year. And higher mortgage rates could encourage some potential buyers to come off the sidelines and purchase homes before rates rise further.
The strength in housing this year has offset weaknesses elsewhere in the economy, like manufacturing and business investment. Rising home sales tend to lead to more spending at furniture and home supply stores.
Homebuilders have also stepped up construction in the past year, creating more construction jobs. In June, they applied for permits to build single-family homes at the fastest pace in five years.