Pending home sales fell more than expected in August

Pending home sales in the U.S. fell more than expected in August - notching the third month of declines as higher borrowing costs pushed more prospective buyers to the sidelines.

The National Association of Realtors index of pending home sales decreased by 2.0% from a month earlier, more than the 1.5% decline that economists had predicted, according to data released Wednesday by the National Association of Realtors. The pending sales were down 24.2% year over year.

Contract signings decreased 5.2% in the Midwest, 3.4% in the Northeast and 0.9% in the South, but rose 1.4% in the West. The pending sales were retracted by double-digit percentages in each region compared to a year ago.

The measure has been a key indicator of the housing market's health, and shows how high inflation and rising mortgage rates have become a destructive combination for the market, forcing potential buyers to pull back on their purchase plans.

Lawrence Yun, NAR Chief Economist Lawrence Yun, said that the direction of mortgage rates upward or downward is the prime mover for home buying and decade-high rates have deeply cut into contract signings. If mortgage rates are moderate and the economy continues adding jobs, home buying should also be stabilized. Mortgage rates have gone up rapidly as the Federal Reserve aggressively attempts to tap down inflation by hiking its short-term benchmark rate. In August, rates fell below 5% briefly, but they have since moved higher.

In the beginning of August, mortgage rates were barely above 5%, but by the end of the month they had climbed 56 basis points to 5.55%, according to Hannah Jones, economic data analyst for Realtor.com. Home shoppers responded to the continued pressure on their wallets by taking another step back this month, as reflected in today s data. The average mortgage rate for the 30 year fixed mortgage was 6.29% last week, the highest level since October 2008, according to Freddie Mac. The rate is expected to be higher this week.

The month's payment on a typical home with 20% decreased to $1,841 in the second quarter, according to the National Association of Realtors. That's a 32% increase, or $444 more, compared to the first quarter and a 50% increase from a year ago. Families spent 24% of their income on mortgage payments, a 19% increase from the previous quarter.

Yun expects that the economy will slow down through the end of the year, with mortgage rates rising close to 7% in the coming months.

Mortgage rates will only be steady if inflation calms down, Yun said.

Recent data shows a cooling market. The S&P CoreLogic Case-Shiller index showed that existing home sales fell in August and housing prices slowed by the largest amount on record in July.

Sellers who are in a rush have been forced to lower their prices while others are pulling their listings off the market. According to online brokerage Redfin, the average U.S. home sold below its asking price for the first time in almost 18 months last month.

Even home builders are chopping prices to help close sales.

Jones said sellers are feeling the softening in buyer demand and more are responding to price reductions to keep inventory moving.