(Reuters) - Contract signings for U.S. home purchases fell by the most in three years in April and the overall level of activity was the lowest since the onset of the COVID-19 pandemic in the spring of 2020, as high interest rates keep a lid on the housing market, the National Association of Realtors said on Thursday.

The NAR said its pending home sales index fell 7.7% in April to 72.3 from an upwardly revised 78.3 reading in March. The drop was the largest since February 2021 and the index level was the lowest since the record-low reading of 71.8 in April of 2020.

The index is meant to be predictive of completed home sales transactions one to two months later.

"The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market," said Lawrence Yun, the NAR's chief economist. "But the Federal Reserve's anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply."

The Fed has raised interest rates by 5.25 percentage points since March 2020 to combat inflation. Rates have been on hold since last July and the year began with expectations for as many as three quarter-percentage-point rate cuts this year, but stiffer-than-expected inflation to start the year has changed the Fed's tone. Bond market pricing now reflects the likelihood of no more than two rate cuts this year.