WASHINGTON - A near-record low for an index that forecasts near-term home sales suggests borrowers in expensive areas are struggling to finalize home purchases amid mortgage market troubles.
The National Association of Realtors said Wednesday its seasonally adjusted index of pending sales for existing homes fell 16.1 percent in July 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.
The pending home sales 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.
'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.'
Stock markets slumped after the real estate data were released.
Lawrence Yun, senior economist at the real estate trade group, said the weak pending sales data stem from the fact that government-sponsored mortgage giants Fannie Mae and Freddie Mac cannot package 'jumbo' home loans above $417,000 into securities sold to investors.
Some home purchases aren't closing because mortgage loans have been 'falling through at the last moment,' Yun said in a statement.
A survey of 1,700 mortgage brokers to be released this week and sponsored by trade publication Inside Mortgage Finance found that one-third of the transactions mortgage brokers handled in August were not finished. Mortgage brokers account for about one-third of total mortgage originations.
The pending home sales data show the biggest year-over-year 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.
As of last week, 30-year fixed-rate jumbo loans averaged 7.43 percent, while similar loans that can be purchased by Fannie and Freddie averaged 6.5 percent, according to publisher HSH Associates. The spread between the two types of loans was 0.2 percentage points back in mid-July.
While the jumbo market may return to normal this fall, that process is likely to take a while, said Keith Gumbinger, vice president of HSH Associates.
'This dislocation was a sudden event,' he said. 'Rebuilding the trust in what those markets represent will take a bit of time.'