Americans signed fewer contracts to buy homes in July, according to data released today by the National Association of Realtors (NAR).

NAR's Pending Home Sales Index fell to 86.5, a month-over-month drop of 2.9 percentage points, in July. Year-over-year, July’s numbers represent a 6.3 percentage point reduction in the index.

According to NAR chief economist Lawrence Yun, the fault for the depressed July numbers rests with mortgage finance firms Freddie Mac and Fannie Mae, which were this week taken over by the federal government. “Pending home sales are oscillating month-to-month, with the long-term trend essentially flat,” he said. “Overly stringent lending criteria imposed by Fannie Mae and Freddie Mac in the past month no doubt held back contract signings.”

While standards did tighten up in July, thanks to new Federal Reserve truth-in-lending rules, many expected that such developments would not dramatically affect the housing market, since so many lenders had already become more restrictive.

July also brought plenty of uncertainty for homeowners and would-be buyers. Banks repossessed more homes in July. Home prices declined. Mortgage rates also climbed as high as 6.63 percent for a 30-year fixed-rate loan in late July.

July was also the last month before President Bush approved the landmark housing rescue legislation on July 30, which many hope will stimulate demand with a $7,500 temporary tax credit for first-time buyers and stabilize the housing market by allowing financially troubled homeowners to refinance into FHA-backed mortgages starting this fall.

Yun did acknowledge that the current housing market is a challenging one. “The economy is producing more, yet cutting jobs. A first-time home buyer tax credit and lower interest rates on newly conforming jumbo loans favors consumers, yet buyer confidence remains low,” he said. “Even with the Treasury Department’s direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria, or if it will remain overly stringent. The housing market outlook is very cloudy.”

Alison Rice is senior editor, online, at BUILDER magazine.