Higher mortgage rates and home prices are being blamed for a fall in home sales in September. 

The National Association of REALTORS® reported Monday that contracts on pending home sales fell 5.6 percent in September, the fourth consecutive month that the measure has dropped. NAR’s Pending Home Sales Index, which reflects contracts, not closings, is at its lowest level since December 2012. 

“Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity,” says Lawrence Yun, NAR’s chief economist. Affordability has dropped to a five-year low due to rising mortgage rates and home prices that have outpaced income growth, NAR says.  

Mortgage rates began rising in May when the Federal Reserve announced that it would likely reduce its $85 billion-per-month bond-purchasing program before the end of the year. The program has kept rates at record lows the past few years. The Fed decided at its mid-September meeting to hold off on tapering the program for now. The move has helped rates decline somewhat in recent weeks. 

Still, 30-year fixed-mortgage rates averaged 3.41 percent a year ago compared to 4.13 percent last week, Freddie Mac reports. 

“Expected rising mortgage interest rates will further lower affordability in upcoming months,” Yun said recently.

Every time mortgage rates tick up, it can effect a buyer’s purchasing power. For example, a 1 percent rate change — which occurred over the summer — could decrease a buyers’ purchasing power by more than 10 percent, according to mortgage blogger Dan Green with The Mortgage Reports.  

Source: NAR