A National Association of Realtors index of contract signings fell 5.5% to 70.2 last month, the lowest in data back to 2001, the group said Thursday. The drop was larger than all estimates in a Bloomberg survey of economists and reflected declining sales in all four major regions. 

"The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming US presidential election," NAR Chief Economist Lawrence Yun in a statement.

The previously owned home market has been hamstrung by high borrowing costs and lean inventory for nearly two years. While mortgage rates have declined this month to the lowest in over a year, high prices and limited inventory are deterring prospective buyers who might still be holding out for cheaper rates.

"Falling mortgage rates will no doubt bring buyers into market," Yun said.

The contract rate on a 30-year fixed mortgage is now below 6.5% in the wake of recent comments from Federal Reserve Chair Jerome Powell, who said last week "the time has come" for the central bank to cut interest rates.

Lower borrowing costs would help ease one the least affordable housing markets in history. An index of US home prices by S&P CoreLogic Case-Shiller hit a fresh record on Tuesday, with prices up 5.4% in the year through June. 

Sales decreased in all four U.S. regions, especially in the Midwest and South. The Northeast registered the smallest decline last month, and Yun noted the New England region has performed better than others recently.

Pending-sales figures tend to be a leading indicator of sales of previously owned homes, because houses typically go under contract a month or two before they're sold.