WASHINGTON (Reuters) - Contracts to buy U.S. previously owned homes dropped to a record low in July as higher prices and borrowing costs drove potential buyers from the market.

The National Association of Realtors (NAR) said on Thursday its Pending Home Sales Index, based on signed contracts, fell 5.5% last month to 70.2, the lowest reading since the series started in 2001. Pending home sales fell in all four regions last month. Economists polled by Reuters had forecast contracts, which become sales after a month or two, would rise 0.4%.

Pending home sales plummeted 8.5% on a year-on-year basis in July.

"The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election," said Lawrence Yun, the NAR's chief economist.

Sales activity is likely to remain subdued. A Conference Board survey on Tuesday showed the share of consumers planning to buy a house over the next six months in August was the smallest since early 2013. 

House prices remain elevated, though the pace of increases has slowed. The Federal Housing Finance Agency reported on Tuesday that house prices rose 5.1% on a year-on-year basis in June, the smallest rise in nearly a year, after advancing 5.9% in May.