Pending home sales were unable to sustain the slight upward tick experienced in July and resumed their downward trend in August, declining by 2.4 percent.  It was the third time in four months that pending sales have failed to exceed the previous month's numbers.

The National Association of Realtors said its Pending Home Sales Index (PHSI), a forward-looking indicator based on home purchase contracts signed, was 108.5 in August compared to 111.2 in July and at the lowest level since a reading of 105.4 in January 2016.  August's pending sales were also slightly (0.2 percent) lower than in August 2015.

The PHSI had been reported to have a gain of 1.3 percent in July but that was revised down to 1.2 percent with today's report.  

Lawrence Yun, again blamed the tight supply of available homes for "taking the wind out of the momentum of the housing market."  He said, "Contract activity slackened throughout the country in August, except for in the Northeast where higher inventory totals are giving home shoppers greater options and better success signing a contract. In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings."

Housing inventory has declined year-over-year for 15 straight months and Yun said evidence is piling up that without more new home construction the current housing recovery could stall. Properties in August typically sold 11 days quicker than in August 2015 and prices have risen year-over-year for 54 consecutive months increasing 5.1 percent in August.  "There will be an expected seasonal decline in new listings in coming months," Yun said, "which could accelerate price appreciation and make finding an affordable home even more of a struggle for would-be buyers."

"Given the current conditions, there's not much room for sales to march again towards June's peak cyclical sales pace," said Yun.  That month existing home sales were the highest since February 2007 at a seasonally adjusted annual rate of 5.57 million units.

After the August dip in pending sales Yun expects existing-home sales in 2016 to be around 5.36 million, a 2.1 percent increase from 2015 and the highest annual pace since 2006 (6.48 million). The national median existing-home price growth is forecast this year to rise around 4 percent.

As Yun said, the only bright spot in the report was for the Northeast where the PHSI rose 1.3 percent to 98.1 in August, and is now 5.9 percent higher than a year earlier. In the Midwest the index decreased 0.9 percent to 104.7 in August, and is now 1.7 percent lower than August 2015.

Pending home sales in the South declined 3.2 percent to an index of 119.8 in August which is 1.5 percent lower than in August 2015. The West saw a fall-off of 5.3 percent from July to 102.8, 0.6 percent below the previous August.

Earlier this month, NAR released a study showing that single-family home construction is falling behind job creation in 80 percent of the metro areas the organization tracks. When combined with the scant supply levels for existing homes, these tight inventory conditions continue to hamper affordability in many of the largest cities in the country - especially those in the West.

The Pending Home Sales Index is a forward-looking indicator of existing home sales and is based on a large national sample typically representing about 20 percent those sales.  A signed contract is generally expected to become a closed sale within one to two months. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined.