Signed contracts to buy US homes rise 5.2 percent in July; housing demand still weak

Pending home sales rise 5.2 percent in July

WASHINGTON — The number of buyers who signed contracts to purchase previously occupied homes increased in July but remained well below last year’s levels, a sign that demand for housing remains weak.

The National Association of Realtors said Thursday its seasonally adjusted index rose 5.2 percent from a month earlier to a reading of 79.4.

A reading of 100 indicates the average level of sales activity in 2001, when the index started. The reading was above that threshold from March 2003 through April 2007. It sank during the recession, only to surge above 100 a year ago when the government first offered tax incentives to spur sales.

When the credits expired in April, the index sank. June’s reading of 75.5 was the lowest on record.

Even with the July increase, the latest reading was 19 percent below the same month last year and home sales are at the lowest level in more than a decade.

Potential buyers are holding off purchases because they are worried about jobs and the economy. Many buyers have been scared away by the prospect that home prices could fall again — something most analysts expect. And some are having trouble meeting tighter lending standards and can’t qualify for loans.

As a result, buyers are in a far stronger position than sellers — and are taking their time.

Theo Varelas, 26, of San Bruno, Calif., has been living with his parents for several years socking away money for a down payment. With the economy weakening, he anticipates home prices will drop in the San Francisco Bay Area. Though he scans through listings on a daily basis in search of a bargain, he’s not rushing.

“The offers I’m going to make are going to be under the list price,” Varelas said. “If it doesn’t work out, then my outlook on it is ‘Oh well, I can wait.’”

The cheapest mortgage rates in decades haven’t been able to lift the housing market. The average rate for a 30-year fixed loan was 4.32 percent this week, down from 4.36 percent last week, mortgage buyer Freddie Mac said. It was the tenth time in 11 weeks that rates have fallen to the lowest level in decades.

“We should be seeing more sales with financing so cheap,” wrote Mike Larson, real estate analyst with Weiss Research. “The fact we’re not speaks to the severity of the jobs crisis and the ongoing lack of confidence in the future direction of home prices.”

The sales index provides an early measurement of sales activity because there is usually a one- to two-month lag between a sales contract and a completed deal.

“The recovery looks to be a long process, ” Lawrence Yun, the Realtors’ chief economist, said in a statement. “For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”

The sales report was driven by a nearly 12 percent jump in the West and a more than 6 percent increase in the Northeast. Sales were up 4 percent in the Midwest and about 1 percent in the South.

AP Business Writer Daniel Wagner contributed to this report.

(This version corrects April 2007, instead of May 2007 in paragraph 3)