WASHINGTON – Sept. 29, 2014 – Pending home sales slowed modestly in August, but contract signings remain at their second-highest level over the past year, according to the National Association of Realtors® (NAR). All major regions experienced declines except for the West, which rose for the fourth consecutive month.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, fell 1.0 percent to 104.7 in August from 105.8 in July. It's now 2.2 percent below August 2013 (107.1).

Despite the slight decline, the index is still in positive territory above 100 – considered an average level of contract activity – for the fourth consecutive month. It's also at its second-highest level since last August.

"With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home," says Lawrence Yun, NAR chief economist. "Fewer distressed homes at bargain prices and the acknowledgement we're entering a rising interest rate environment likely caused hesitation among investors last month."

According to NAR's Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed got a conventional or FHA loan. Overall, the percent of first-time buyers has dropped during the housing recovery, and they've now represented less than a third of all buyers for the past two years.

However, Yun expects first-time buyer participation to gradually improve despite tight credit conditions and an inevitable rise in mortgage rates.

"The employment outlook for young adults is brightening, and their incomes finally appear to be rising," he says. "Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years."

The PHSI in the Northeast slipped 3.0 percent to 86.5 in August, but it's still 1.6 percent above a year ago. In the Midwest, the index fell 2.1 percent to 102.4 in August; it's 7.6 percent below August 2013.

Pending home sales in the South decreased 1.4 percent to an index of 117.0 in August, unchanged from a year ago. The index in the West rose for the fourth consecutive month (2.6 percent) to 102.1, but it's remains 2.6 percent below August 2013.

According to NAR, existing-home sales should be stronger in the second half of the year behind improved inventory conditions, continuously low interest rates and slower price growth. Overall, Yun forecasts existing-homes sales to be down 3.0 percent this year to 4.94 million, compared to 5.09 million sales of existing homes in 2013. The national median existing-home price is projected to grow between 5 and 6 percent this year and 4 and 5 percent next year.

© 2014 Florida Realtors®