(Reuters) - Contracts to buy U.S. previously owned homes edged up in August from July's record-low level as a drop in mortgage interest rates in anticipation of Federal Reserve benchmark rate cuts provided a modest lift to affordability.

The National Association of Realtors (NAR) said on Thursday its Pending Home Sales Index, based on signed contracts, rose 0.6% last month to 70.6 from July's 70.2, which was the lowest reading since the series started in 2001. Economists polled by Reuters had forecast contracts, which become sales after a month or two, would rise 1.0%.

On a regional basis, pending home sales rose in the West, South and Midwest, while falling in the Northeast. The year-over-year change in the national sales rate remained negative, however, declining 3.0% from August 2023.

"A slight upward turn reflects a modest improvement in housing affordability, primarily because mortgage rates descended to 6.5% in August," said Lawrence Yun, the NAR's chief economist.

That decline had tracked a drop over the month of August in the yield on the 10-year Treasury note - used as a benchmark for mortgage rates - in anticipation of a Fed rate cut at its September meeting. The Fed did cut rates last week as anticipated, though by a larger-than-expected 50 basis points, with more cuts seen in the months ahead, and mortgage rates this month have fallen closer to 6%.

Still, sales activity is likely to remain subdued, as even with the decline in borrowing costs ongoing home price gains continue to offset a portion of those savings, and inventory remains limited as well.

The affordability picture could change in the months ahead, Yun said. With a 30-year fixed-rate mortgage now near 6%, that translates into $300 a month in savings on the purchase of a $300,000 home compared with a few months ago.