(Reuters) -Contracts to purchase previously owned U.S. homes declined for the second consecutive month in July in step with limited supply that’s been unable to keep up with demand from potential homebuyers. The National Association of Realtors (NAR) said on Monday its Pending Home Sales Index, based on contracts signed last month, fell 1.8% after dropping a revised 2.0% in June. Economists polled by Reuters had forecast pending home sales would increase 0.4%. 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 market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” Lawrence Yun, NAR’s chief economist, said in a statement. “Inventory is slowly increasing and home shoppers should begin to see more options in the coming months.” Home prices have surged nationwide in large part due to limited supply, with the median price for new single-family homes now topping $390,000 and for existing homes just under $360,000. Compared with one year ago, pending home sales were down 8.5%. “The highly competitive real estate market we saw in the first six months of 2021 squeezed available inventory to record-lows and pushed prices to new highs just as summer emerged, leaving many first-time buyers feeling frustrated,” said George Ratiu, manager of economic research for Realtor.com. “However, in a noticeable shift, homeowners responded to market trends and started listing homes in larger numbers.” Only the West region posted a month-over-month gain in contract activity in July, while the Midwest, Northeast and the South all reported declines. All four regions saw transactions decrease on a year-over-year basis. “Homes listed for sale are still garnering great interest, but the multiple, frenzied offers – sometimes double-digit bids on one property – have dissipated in most regions,” Yun said. “Even in a somewhat calmer market, a number of potential buyers are still choosing to waive appraisals and inspections.” Existing home sales increased for the second consecutive month in July as inventories improved moderately. New home sales also increased last month, but this followed three straight months of declines. Reporting by Evan Sully; Editing by Andrea Ricci Our Standards: The Thomson Reuters Trust Principles.