Pending Home Sales Unexpectedly Drop in August

A forward-looking gauge of U.S. home sales slipped in August--further evidence that the surge in momentum in the first half of the year has leveled off. The National Association of Realtors said Monday its pending home sales index, which is based on signings for purchases of previously owned homes, declined 1.4% to a seasonally-adjusted 109.4 in August, from a reading of 110.9 in July. Economists surveyed by The Wall Street Journal had expected a 0.4% rise in August. Home sales typically close within a couple months after signing. The index rose 6.1% in August from a year earlier, the 12th consecutive annual increase. "Even with existing-housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago," Lawrence Yun, chief economist for the Realtors' group, said. News Corp, owner of The Wall Street Journal, also owns Move, which operates a website and mobile products for the National Association of Realtors. Other recent data point to steady demand in the housing market this summer. Sales of new, single-family home sales, which account for about 10% of the market, rose by 5.7% last month. Meanwhile, the pace of completed existing-home sales has returned to its pre-recession levels, although sales slipped in August after a strong start to the year. Despite a large increase in sales, new construction of single-family homes only increased 8.7% from a year ago in August, according to data from the Commerce Department. But builder sentiment is the highest it has been in nearly a decade, according to a survey of home builders. Stronger job gains have also helped build momentum in the housing market. Interest rates also remain at historical lows. The average interest rate for a 30-year fixed-rate mortgage was 3.91% in August, according to Freddie Mac, the lowest it has been since May. Mr. Yun said sales in the coming months should be able to maintain their current pace, but he warned a looming government shutdown and further stock-market volatility could cause some buyers to put off home purchases. According to Monday's report, pending home sales rose modestly in the West, but declined in every other region. Write to Kate Davidson at kate.davidson@wsj.com