PENDING US sales of previously-owned homes unexpectedly declined in January by the most in five months as elevated mortgage rates kept a lid on housing demand.

A gauge of contract signings from the National Association of Realtors (NAR) decreased 4.9 per cent to 74.3, after surging to an eight-month high in December. The decline was steeper than all estimates in a Bloomberg survey of economists.

“This combination of economic conditions is favourable for home buying,” Lawrence Yun, NAR’s chief economist, said in a statement. “However, consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.”

A brief retreat in mortgage rates below 7 per cent boosted new-home sales, as well as closings on existing houses last month. But the Federal Reserve has stressed it’s in no rush to cut interest rates, reinforced by data earlier on Thursday (Feb 29) that showed officials’ preferred inflation gauge rose in January by the most in nearly a year.

Expectations that rates will stay elevated have pushed home-financing costs higher in recent weeks. Earlier this week, a gauge of US mortgage applications for home purchases fell for a fifth week, nearing its lowest level since 1995.

The pending-home sales report is a leading indicator of existing-home sales given houses typically go under contract a month or two before they’re sold.

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The index of contract signings decreased 7.3 per cent in the South, the nation’s biggest housing market. Pending sales also fell 7.6 per cent in the Midwest, but climbed 0.8 per cent in the Northeast and 0.5 per cent in the West.

“Southern states and those in the Rocky Mountain time zone experienced faster job growth compared to the rest of the country,” Yun said.

“As a result, long-term housing demand is increasing more significantly in these regions. However, the timing and number of purchases will largely depend on the prevailing mortgage rates and inventory availability.” BLOOMBERG