US pending home sales unexpectedly rise in August, trend remains weak

WASHINGTON, Sept 17 (Reuters) - Contracts to purchase previously owned U.S. homes unexpectedly rose in August, but the gain is likely to be temporary as elevated mortgage rates continue to sideline some prospective buyers and weigh on housing demand.

The pending home sales index increased 0.3% to 71.2 last month, the National Association of Realtors said on Thursday. Economists polled by Reuters had forecast contracts, which become sales after a month or two, declining 0.6%. Contracts increased in the South and West regions. They dropped in the Northeast and Midwest regions.

Pending home sales fell 4.7% year-on-year in August.

Mortgage rates remained elevated in August, rising further in recent weeks in tandem with a surge in longer-term U.S. Treasury yields, which have been boosted by inflation amid the U.S.-led war with Iran as well as uncertainty over the Federal Reserve's response. A ballooning national debt has also driven yields higher, with the benchmark 10-year Treasury bond yield hovering around 5.0%.

The U.S. central bank on Wednesday raised interest rates for the first time since July 2023. The 30-year fixed mortgage rate averaged 6.76% last week, the highest level in more than a year, up from 6.71% in the prior week, data from mortgage finance firm Freddie Mac showed.

"Nationally, contract signings today are running roughly 30% below where they were in the years leading up to the pandemic," said Lawrence Yun, the NAR's chief economist. "Transaction activity peaked in 2021 when mortgage rates fell to near 3%, a historic low, and has not approached that level since."