WASHINGTON: Contracts to buy previously owned homes unexpectedly fell in July, according to a report on Thursday from the National Association of Realtors that suggested households might be holding back due to heightened concerns about the economy.

The NAR's pending home sales index dropped 2.5% last month to 105.6. Economists polled by Reuters had forecast pending home sales would be flat during the month.

Pending home contracts are seen as a forward-looking indicator of the health of the housing market because they become sales one to two months later.

The US housing sector has been in a rut for most of the last year despite a sharp drop in mortgage interest rates. Pending home sales were down 0.3% in the 12 months through July.

With a US-China trade war intensifying and the global economy slowing, the US Federal Reserve signaled early this year that it no longer planned to raise rates in 2019 and in July the Fed cut rates for the first time since 2008. Mortgage rates have been falling throughout 2019.

While the US jobless rate has remained historically low, investors are betting that worries about the economy and trade conflicts could lead the Fed to cut rates further.

“Super-low mortgage rates have not yet consistently pulled buyers back into the market," said Lawrence Yun, NAR chief economist. “Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes."

Copyright Reuters, 2019