US pending home sales in May fell to the lowest level this year as high mortgage rates and inventory constraints continue to impact sales.

The National Association of Realtors’ index of contract signings to purchase previously owned homes dropped 2.7% to 76.5 last month, according to data released Thursday. The decrease was bigger than all but one estimate in a Bloomberg survey of economists.

The resale market continues to face headwinds as high borrowing costs and low supply weigh on sales. Many homeowners who locked in lowers mortgage rates in the past are reluctant to move, adding to inventory constraints that are pushing many buyers into the new-home market and helping keep existing-home sales subdued.

“The lack of housing inventory continues to prevent housing demand from being fully realized,” Lawrence Yun, NAR’s chief economist, said in a statement. “It is encouraging that homebuilders have ramped up production, but the supply from new construction takes time and remains insufficient.”

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

Sales declined in three of four regions, with transactions in the Midwest falling to the lowest level since April 2020. From a year earlier, US home purchases were down nearly 21% on an unadjusted basis.

--With assistance from Chris Middleton.