The National Assocation of Realtors this morning (Oct. 2) reported that its Pending Home Sales Index, based on contracts signed in August, dropped 6.5% to 85.5 from an upwardly revised 91.4 in July and 21.5% from 108.9 in August, 2006.

The decline in the index was taken as evidence that the tightening in the credit markets in August directly affected home sales. "Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10% of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments," said Lawrence Yun, the NAR's senior economist. "The volume of activity we're seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can¹t because of the credit crunch."

Regionally, the index fell 2.7 in the West to 80.3, 27.1% below a year ago; 2.9% in the Midwest to 78.1, 18.0% lower than August 2006; 8.3% in the Northeast to 77.3, 18.3% below a year ago; and 9.5% in the South to 97.8, 21.3% below August 2006.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, when the NAR began tracking pending sales.

"The impact was greater in high-cost markets that are more dependent on jumbo mortgages. In some areas, as much as 30% of signed contracts were falling through in August when the credit crunch problem peaked," Yun said."The problem has since become less severe, though jumbo loan rates are still higher than they would be under normal conditions. Therefore, sales activity in late fall will better reflect market fundamentals."

Wall Street seemed to take the numbers as an indicator that perhaps the housing market was nearing a bottom. Stocks overall were unchanged as the index numbers were announced at 10 a.m., with the builder stocks continuing a strong rally started yesterday by an upgrade to a buy rating of Centex, D.R. Horton. Lennar, Pulte and Ryland by Citigroup housing analyst Stephen Kim.