Contracts to buy previously owned homes fell more than expected in August to their lowest level in about 1-1/2 years as the housing market continues to be sapped by a shortage of inventory that is also pushing up home prices.

The National Association of Realtors said on Wednesday its Pending Home Sales Index, based on contracts signed last month, dropped 2.6 percent to a reading of 106.3. July's index was unrevised.

Economists polled by Reuters had forecast pending home sales declining 0.5 percent last month. It was the fifth time in six months that pending home sales have retreated.

Pending home contracts are viewed as a forward-looking indicator for the state of the housing market because they become sales one or two months later.

Given the contraction and the likely slowing of activity in areas affected by Hurricanes Harvey and Irma, the NAR also said it now expects existing home sales this year to be below the 2016 level.

Although the U.S. economy continues to strengthen, the housing market has lost some steam this year. Home sales have weakened amid tight inventories while builders have cited shortages of land and labor as a curb on construction.

Compared to one year ago, pending sales were down 2.6 percent. Contracts fell in all four regions of the country. The Northeast fared the worst with a 4.4 percent drop last month.

"August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes," NAR chief economist Lawrence Yun said in a statement.