• The National Association of Realtors' Pending Home Sales Index fell 0.4% in July to 71.7, missing consensus estimates for a 0.1% decline.
  • The drop in contract signings, a leading indicator for future sales, follows a 0.8% decrease in June and reflects ongoing affordability pressures.
  • Despite the decline in pending sales, a separate report showed existing-home sales actually rose 2.0% in July, highlighting a disjointed market recovery.

Contracts for U.S. home purchases declined for the second consecutive month in July, according to data released Wednesday, suggesting the housing market's recovery remains fragile amid elevated borrowing costs. The National Association of Realtors' Pending Home Sales Index, which tracks signed contracts on existing homes, fell 0.4% to 71.7, a steeper drop than the 0.1% decline economists had forecast.

The unexpected dip underscores the persistent headwinds facing potential buyers, even as other segments of the market show tentative signs of stabilization. The data points to continued weakness in future closing activity, as pending sales typically lead existing-home sales by one to two months.

“This isn't the direction the market was hoping for,” said one analyst who reviewed the data ahead of its release. “It tells us that the underlying demand is still there but is being held back by affordability. Every time mortgage rates tick up, it pushes a cohort of buyers back to the sidelines.”

The July setback follows a revised 0.8% drop in June and leaves contract signings down 2.8% from a year earlier. The weakness was not uniform across the country, however, with the West and South seeing declines while the Northeast and Midwest posted modest gains.

This softness in forward-looking indicators contrasts with a more positive report on completed transactions. Data last week showed existing-home sales rose 2.0% in July to a seasonally adjusted annual rate of 4.30 million, with the median sales price largely stable at $422,400. The inventory of homes for sale climbed to 1.55 million units, the highest level since May 2020, offering buyers more choices but also reflecting a slower pace of deals.

The divergence between the two reports highlights the complex and often contradictory signals emanating from the housing sector. While closed sales benefited from contracts signed during a brief dip in mortgage rates earlier in the spring, the more recent pending sales data captures the impact of rates moving higher again through the summer.

Affordability remains the central challenge. Although wage growth has begun to outpace home price changes in some markets, the median new home price fell 5.9% from a year ago to $403,800 in July, according to separate government data. This price moderation, however, has not been enough to offset the impact of mortgage rates that are still near two-decade highs.

The NAR’s own Realtors® Confidence Index suggests industry professionals see some green shoots, with anecdotal reports of increasing buyer and seller traffic. But for now, the path to a sustained recovery appears contingent on a more stable interest rate environment. Efforts to reach NAR's chief economist for immediate comment on Wednesday's data were not immediately successful.