Pending home sales plunged in the U.S. last month as high mortgage rates deterred more would-be buyers and sellers from making deals.
The National Association of Realtors' Pending Home Sales Index tumbled 7.1% to 71.8 in August, a much greater decline than the 0.8% drop analysts polled by Refinitiv expected.
Year over year, pending transactions are down 18.7%, the NAR's data shows.
"Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers," said Lawrence Yun, NAR's chief economist. "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."
MORTGAGE DEMAND SLUMPS AS RATES SURGE TO 23-YEAR HIGH
Meanwhile, would-be sellers locked in with much lower rates are staying put, contributing further to the ongoing inventory shortage that has been driving up home prices ever since the pandemic began.
The sale of new homes dropped unexpectedly in August, too, falling 8.7% to a seasonally adjusted annual rate of 675,000 units, according to the latest data from the Commerce Department.
The decline in sales indicates that a resurgence in mortgage rates is pushing many would-be buyers out of the market. That slowdown in demand contributed to a decline in new home prices last month.
The median price for a new home fell to $430,000 from $436,700 the previous month. Still, that remains far higher than the typical pre-pandemic level.
NEW HOME SALES TUMBLE IN AUGUST AMID RISING MORTGAGE RATES
The number of available homes on the market at the end of July was down by more than 9% from the same time last year and down 46% from the typical amount before the COVID-19 pandemic began in early 2020, according to a recent report from Realtor.com.
Redfin reported earlier this month that the median monthly mortgage payment hit an all-time high of $2,632 during the four weeks ending Sept. 10. At the same time, the average interest rate for the benchmark 30-year fixed-rate mortgage has remained above 7%, and hit a 23-year high of 7.41% last week, according to the Mortgage Bankers Association.
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"It's clear that increased housing inventory and better interest rates are essential to revive the housing market," Yun added.
FOX Business' Megan Henney and Daniella Genovese contributed to this report.
