Pending home sales retreat

July decline of 3.2%, reversing prior month gain, shows housing market remains in 'malaise.'

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By Les Christie, CNNMoney.com staff writer

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NEW YORK (Cinnamon) -- Pending home sales fell 3.2% in July after gaining in June, according to a real estate group's report released Tuesday, in the latest in a series of gloomy housing reports.

The Pending Home Sales Index fell to 86.5, after gaining 5.8% in June, according to the National Association of Realtors (NAR). It now stands 6.7% below July 2007's reading of 92.8.

The index is a forward-looking indicator of housing sales, based on contracts signed during the month.

"This is more evidence that the housing market is still in a malaise," said Michael Larson, a real estate analyst with Weiss Research.

Tighter lending standards have made it hard for buyers to get loans, which is hurting sales.

"Overly stringent lending criteria imposed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) in the past month no doubt held back contract signings," said NAR chief economist Lawrence Yuan.

The Midwest was the best performing region in July, with sales contracts up 2.8%. The index fell in the Northeast by 7.5% and in the West by 10.6%, while the South region was unchanged.

The July result was disappointing, according to Richard DeKaser, chief economist for National City Corp. (NCC, Fortune 500), but not unexpected. The index has held in a range between 83 and 89.4 over the past few months, but saw a sharp jump in June to 89.4.

The good news, according to DeKaser, is that the index has plateaued, indicating that a bottom in existing home sales may have been reached. And that bottom may mean that prices could stabilize in some areas, although at lower levels than they once were.

Bargains in areas of the country hard hit by the bust are drawing house hunters back into a few local markets, said Larson.

"We have seen sales pick up in some areas where homes are being basically liquidated for just about any price the sellers can get," he said.

That could provide a boost to sales volume in the coming months.

Sales have been flat despite the fact that home prices are way down. The most recent S&P/Case-Shriller report found that home prices fell 15.4% nationally during the 12 months ended June 30.

"Pricing remains attractive, but the ability of home buyers to obtain financing has been made more difficult," said DeKaser. "Lending standards had gotten increasingly tight."

The weekend takeover of Fannie and Freddie, the two mortgage giants that were created to promote mortgage lending, should help. Funding costs for Fannie and Freddie will be significantly reduced, according to DeKaser, and those savings will be passed on to consumers.

Already interest rates have fallen to 5.88% from 6.26% a week earlier, according to Bankrate.com.

"We want to see if the mortgage rate decline stands," said Larson. "That would help to stabilize things." To top of page

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