The August Pending Home Sales Index issued by the National Association of Realtors  slipped slightly from July's numbers, portending a few more months of depressed home sales.  The index is based on home purchase contracts signed during the month and is considered a forward indicator of rising or falling sales as those transactions close, usually within 60 days. 

The national index declined 1.2 percent to 88.6 in August compared to 89.7 in July.  This is 7.7 percent above the index in August 2010 when it stood at 82.3.  The index is based on a scale where 100 is equal to the average level of contract activity during the base year of 2001.

Contract signings were down in every region but the South where pending home sales rose 2.6 percent to an index value of 96.9, 7.6 percent higher than the index one year earlier.  The index declined 5.8 percent in the Northeast to 63.6 (1.3 percent higher than August 2010) and 3.7 percent in the Midwest.   The Midwest index of 76.2 is 8.2 percent higher than a year ago.  Pending sales dropped 2.4 percent to 108.1 in the West, a year over year increase of 10.5 percent.

Lawrence Yun, NAR chief economist, said the August figures reflect an uneven market.  "The biggest monthly decline was in the Northeast, which was significantly disrupted by Hurricane Irene in the closing weekend of August," he said.  "But broadly speaking, contract signing activity has been holding in a narrow range for many months."

Given the pent-up demand in household formation, he said, the market should be performing better.  "We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit - a factor in elevated levels of contract failures. Based on the improving fundamentals of population growth, some job additions, rent increases and higher stock market wealth, we should be seeing existing-home sales closer to 5.5 million, but are expecting just over 4.9 million this year.  The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and are a risk factor for the overall economy." 

Yun blamed uncertainty for some of the hesitation to enter the housing market.  "We need to remove the road blocks to the housing recovery for people who are trying to take advantage of excellent affordability condition. Unfortunately, some buyers also will face notably higher mortgage rates on jumbo loans because of a lack of competition in the banking industry."