The National Association of Realtors' Pending Home Sales Index resumed its downward course in May, falling 4.7% to 84.7 from an unexpected 6.3% jump to88.9 in April, the NAR said Tuesday. The drop in the index was greater than the 3% decline expected by Wall Street analysts and stands 14% below its level of 98.5 in May, 2007.

"The overall decline in contract signings suggests we are not out of the woods by any means," said Lawrence Yun, the NAR's chief economist.

The Realtors group's monthly forecast now calls for existing-home sales of5.31 million in 2008, down from 5.65 million last year, and sales of 5.58 million in 2009, a 5% increase. The group put new-home sales down 32.3% from2007 to 525,000 in 2008 and down another 3.4% to 507,000 in 2009.

"In light of high inventory conditions, rising commodity prices and construction costs will curtail new home construction deep into 2009," Yun said.

The forecast put the median new-home price down 3.2% to $239,300 this year and up 5.3% in 2009 to $251,900. NAR expects the median existing-home price to decline 6.2% this year to $205,300 and then rise 4.3% in 2009 to $214,100.

Regionally, the PHSI in the West slipped 1.3% to 97.5, 2% higher than May 2007. In the Northeast, the index declined 2.9% to 77.0, 16.4% below a year ago. The index in the Midwest fell 6.0% to 78.6, 13.8% below May 2007. In the South, the index dropped 7.1% to 84.5, 22.1% below a year ago.

J.P. Morgan home building analyst Michael Rehaut saw nothing positive in the numbers. "Given that the existing home market is nearly 10 times the size of the new home market, we believe this depressed sales pace will keep inventory levels elevated through at least the next 2-3 quarters, and should result in further pressure on home prices, driving further large impairment charges for the builders," he wrote in a research note. "Moreover, with the large-caps' P/B [share-price-to-book-value ratio] only slightly below 1990's 0.7x trough, we believe that given today's deeper housing recession, as well as the fact that charges were negligible last cycle, we believe current valuations are justified, and that incremental downside remains given our outlook for further impairments."

Carl Reichardt at Wachovia Capital Markets took a similarly dim view of the decline in the index, writing, "With accelerating job losses and what we view as a slow federal government housing stimulus response, we do not expect a strong rebound in the near term in either the new or existing home market." He added, "We also note that the Pending Home Sales data set is relatively new and has not been tested through cycles as a reliable forward indicator of a housing bottom."