Pending home sales drop to 3-year low

Last Updated Feb 28, 2018 11:14 AM EST

The pace of Americans signing contracts to buy homes fell 4.7 percent in January to its lowest level in more than three years, thanks to a lack of homes for sale, higher prices and rising interest rates. 

The National Association of Realtors said Wednesday that its index of pending sales fell to 104.6, its lowest reading since October of 2014. Rising interest rates are thoughts to contribute to the problem. 

"[T]here's little doubt last month's retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates," said Lawrence Yun, chief economist of the National Association of Realtors.

More Americans are looking to buy homes as the economy has improved, but prices continue to rise amid a dearth of supply. Standard & Poor's said Tuesday that U.S. home prices rose at the fastest 12-month pace in more than three years in 2017. 

Last week, Freddie Mac said that the average rate on 30-year fixed-rate mortgages rose to 4.40 percent, the highest it's been since April 2014.

"We are not precluding the possibility that housing could begin weakening meaningfully in response to a rise in mortgage rates," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said in a note, but noted that unusually cold weather in January may have been a factor in the drop, with the cold Midwest and Northeast leading the decline in pending sales.