WASHINGTON – Pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas.
The National Association of Realtors said its seasonally adjusted index of pending home sales for July fell 16.1 percent from a year ago and 12.2 percent from the prior month.
July's reading of 89.9 was the second-lowest ever for the index and its lowest since September 2001, when the economy was jolted by the terrorist attacks.
"Numbers like this should put to rest the belief that we've reached the bottom" in the housing market, said Joel Naroff, chief economist for Commerce Bancorp Inc. "There's still a lot of pain that's ahead of us."
The index is designed to predict sales levels over the following two months. A reading of 100 is equal to the average level of pending sales activity in 2001, when the index began.
Lawrence Yun, the Realtors trade group's senior economist, called the problems "temporary," and related to jumbo home loans above $417,000 that can't be packaged into securities sold to investors by government-sponsored mortgage giants Fannie Mae and Freddie Mac.
Some home purchases aren't closing because mortgage loans have been "falling through at the last moment," Yun said in a statement.
The real estate trade group found the biggest year-over-year pending sales declines in western states, which dropped 21.8 percent. The smallest drop was in the Northeast, which declined 10 percent.
With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages, and many lenders making jumbo loans have demanded that borrowers pay higher rates.
Democratic lawmakers — and the Realtors' association — have called for Fannie Mae and Freddie Mac to be allowed to purchase loans above the current limit in high-cost areas along the East and West coasts.
So far the Bush administration has rejected calls to raise this limit, as well as limits on the amount of mortgages and mortgage-backed securities that Fannie and Freddie can hold on their books.
Bush on Friday announced his administration's first attempt to cope with the mortgage market's problems. He detailed plans to help about 80,000 additional borrowers by using the Federal Housing Administration, an agency that backs loans for low-income borrowers, to insure more loans.
Investors around the world have been spooked by the U.S. mortgage market's problems, amid uncertainty about how much they will grow. Bank regulators estimate that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.
As of June, 17.5 percent of subprime loans given to borrowers with weak credit nationwide were either 60 or more days delinquent or in foreclosure — more than double the last year's rate, according to FirstAmerican LoanPerformance, a research firm that tracks loans that aren't backed by Fannie Mae and Freddie Mac.