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Contracts to buy U.S. previously owned homes fell more than expected in June as rising mortgage rates and higher house prices continued to reduce affordability for entry-level and first-time buyers, Reuters reported. The National Association of Realtors (NAR) said yesterday that its Pending Home Sales Index, based on signed contracts, tumbled 8.6% to 91.0 last month. Contracts declined in all four regions. The contract rate on a 30-year fixed-rate mortgage is averaging 5.54%, according to data from mortgage finance agency Freddie Mac. The rate has risen more than 200 basis points since January as inflation soared and the Federal Reserve aggressively tightened monetary policy.

The Federal Reserve has aggressively raised short-term interest rates to fight inflation, which in turn helps push rates higher for credit cards, auto loans and mortgages, the Associated Press reported. Rising mortgage rates have combined with already-high home prices to discourage would-be buyers. Mortgage applications have declined sharply. Sales of previously occupied homes have fallen for five straight months, during what is generally the busiest time of year in real estate. The rate on a 30-year mortgage averaged around 5.54% this week, according to mortgage-buyer Freddie Mac; a year ago it was close to 2.78%. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less desirable neighborhood, or drop out of the market, at least until rates come down. All signals point toward the Fed continuing to raise interest rates, promising little relief for potential buyers at least for the rest of the year.