Pending home sales will be subdued in the short-term as subprime mortgage problems continue to worry home buyers. August’s Pending Home Sales Index fell 6.5 percent to a reading of 85.5, down from 91.4 in July and 21.5 percent below the August 2006 index of 108.9.

The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Annual changes in the index are more closely related to actual market performance than are month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be measured.

Lawrence Yun, National Association of Realtors senior economist, said the mortgage market impact is quantifiable:

“Fewer contracts were being written because of mortgage availability issues, and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of cancelled loan commitments. The volume of activity we’re seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can’t because of the credit crunch.

“The impact was greater in high-cost markets that are more dependent on jumbo mortgages. In some areas, as much as 30 percent of signed contracts were falling through in August when the credit crunch problem peaked. 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.”

Regional Pending Home Sales Indices

The PHSI in the South dropped 9.5 percent in August to 97.8, 21.3 percent lower than August 2006.

The PHSI in the West was down 2.7 percent in August to 80.3, 27.1 percent less than a year ago.

In the Midwest, the index fell 2.9 percent from July to 78.1 and is 18.0 percent lower than August 2006.

The index in the Northeast fell 8.3 percent in August to 77.3 and is 18.3 percent below a year ago.