A gauge of U.S. pending home sales fell unexpectedly in February for a fourth straight month as limited inventory continued to restrict a real estate market that's now facing another challenge -- rising borrowing costs.
The National Association of Realtors' index of pending home sales decreased 4.1% from a month earlier to an almost two-year low of 104.9, according to data released Friday. Economists in a Bloomberg survey called for a 1% increase.
"Pending transactions diminished in February mainly due to the low number of homes for sale," Lawrence Yun, NAR's chief economist, said in a statement. "It is still an extremely competitive market, but fast-changing conditions regarding affordability are ahead."
Against a backdrop of a limited number of properties for sale, asking prices remain elevated. That's going to make homes less affordable considering the average rate on a 30-year fixed mortgage stands at a three-year high of 4.5%.
The Federal Reserve raised interest rates earlier this month for the first time since 2018 and central bankers are projected to continue tightening policy with inflation sitting at a four-decade high.
The National Association of Realtors said that higher mortgage rates and sustained price appreciation have pushed up mortgage payments by 28% from February of last year.
"The surge in home prices combined with rising mortgage rates can easily translate to another $200 to $300 in mortgage payments per month, which is a major strain for many families already on tight budgets," Yun said.
Contract signings declined in three of the four regions from the prior month, led by a 6% slide in the Midwest. Pending sales fell 5.4% in the West and 4.4% in the South.
Compared with a year earlier, contract signings dropped 5.4% on an unadjusted basis.
The pending home-sales data are often seen as a leading indicator of existing home sales given they typically go under contract a month or two before they're sold. Sales of previously owned homes fell in February to a six-month low.