The number of pending transactions of home sales continued to shrink in July, according to the National Association of Realtors. This marked the seventh straight month of year-over-year declines.

The Pending Home Sales Index dropped 0.7 percent from June to 106.2. This was also down 2.3 percent from July 2017.

The index is a measure of transactions where a contract has been signed but the transaction has not yet been finalized. This action typically takes place within a couple of months, making pending sales a good forward-looking indicator of upcoming sales of existing homes. A reading of 100 is equal to the average contract activity in 2001, when the volume of existing home sales fell between 5 million and 5.5 million; this total is considered normal for the current population of the United States.

Lawrence Yun, chief economist at the National Association of Realtors, said the slowdown in pending sales is largely driven by a drop of transactions in "overheated" markets, especially on the West Coast. He said these markets are starting to see slower price growth as well as a slight decline in home sales.

"The reason sales are falling off last year's pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it," said Yun.

Yun has frequently blamed low inventory levels for home affordability pressures in many markets, urging the construction of more homes to help more buyers enter the market. The National Association of Realtors recently released commentary on the changes to the housing market since the Great Recession, saying several years of job growth as well as reforms to lending practices and regulatory policies have helped reduce the number of foreclosures and encourage the growth of home values.

"Rising inventory levels—especially if new home construction finally starts picking up—should slow price appreciation to around 2 and 4 percent, which will help aspiring first-time buyers, and be good for the long-term health of the nation's housing market," Yun said.

Yun forecasts that there will be about 5.46 million existing home sales in 2018, a 1 percent drop from the previous year, while the national median price for an existing home will grow 5 percent from the previous year. He expects sales to pick up by 2 percent in 2019 while price growth will slow to 3.5 percent.

The Northeast and Midwest were the only regions with some growth in pending sales. The former region's Pending Home Sales Index increased 1 percent from June to 94.6, but this was also a year-over-year drop of 2.3 percent. In the Midwest, the index grew 0.3 percent to 102.2 but was down 1.5 percent from the previous year.

The Pending Home Sales Index in the West dropped 0.9 percent from June and 5.8 percent from July 2017 to 94.7. The index in the South stood at 122.1, down 1.7 percent from the previous month and 0.9 percent from the previous year.