After reaching the highest level in over six years, pending home sales declined in June, with rising mortgage interest rates beginning to impact the market, according to the National Association of REALTORS®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged down 0.4 percent to 110.9 in June from a downwardly revised 111.3 in May, but is 10.9 percent higher than June 2012 when it was 100.0; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 26 months, and the pace in May was the highest since December 2006 when it reached 112.8.

Lawrence Yun, NAR chief economist, said higher home prices and interest rates are beginning to impact affordability, notably in high-cost regions. “Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” he says. “The persistent lack of inventory also is contributing to lower contract signings.”

Yun notes not all contracts go to closing. “There are some homebuyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates. Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June,” he says. “Closed sales may edge down a bit in the months ahead, but they’ll stay above year-ago levels.”

The PHSI in the Northeast was unchanged at 87.2 in June but is 12.2 percent higher than a year ago. In the Midwest the index slipped 1.0 percent to 114.3 in June but is 19.5 percent above June 2012. Pending home sales in the South fell 2.1 percent to an index of 118.3 in June but are 9.5 percent higher than a year ago. The index in the West rose 3.3 percent in June to 114.2, and is 4.4 percent above June 2012.

Based on year-to-date sales activity, and stable contract signings expected for the balance of the year, NAR projects existing-home sales to rise more than 8 percent in 2013. Inventory shortages will lead the median price to rise by nearly 11 percent this year.