Pending home sales plunge

WASHINGTON — A near-record low for an index that forecasts near-term home sales suggests borrowers in expensive areas are struggling to finalize home purchases amid mortgage-market troubles.

The National Association of Realtors said Wednesday its seasonally adjusted index of pending sales for existing homes nationwide fell 16.1 percent in July from a year ago and 12.2 percent from June.

July's reading of 89.9 was the second-lowest ever for the index and its lowest since the Sept. 11 attacks.

The pending-sales index is designed to predict sales levels over the following two months. A reading of 100 is equal to the average level of activity in 2001, when the index began.

"Numbers like this should put to rest the belief that we've reached the bottom" in the housing market, said Joel Naroff, chief economist for Commerce Bancorp. "There's still a lot of pain that's ahead of us."

Stock markets slumped after the real-estate data were released.

Lawrence Yun, senior economist at the real-estate trade group, said the weak pending-sales data stem from the fact government-sponsored mortgage giants Fannie Mae and Freddie Mac cannot package "jumbo" home loans above $417,000 into securities sold to investors.

Some home purchases aren't closing because loans have been "falling through at the last moment," Yun said in a statement.

A survey of 1,700 mortgage brokers to be released this week and sponsored by trade publication Inside Mortgage Finance found one-third of the transactions that mortgage brokers handled in August were not finished.

Mortgage brokers account for about one-third of total mortgage originations.

The pending-sales data show the biggest year-over-year declines in the West, which dropped 21.8 percent. The smallest drop was in the Northeast, which fell 10 percent.

Seattle-area sales data for existing homes only aren't available. However, July sales of existing and new homes combined were down throughout the Central Puget Sound region, according to the Northwest Multiple Listing Service.

In King County, pending sales were 6.5 percent below the previous July, while sales dipped 14 percent in Snohomish County, 15.8 percent in Pierce County and 13.2 percent in Kitsap County.

With defaults rising among borrowers with weak credit, lenders have backed off from all but the safest mortgages. Many lenders making jumbo loans have demanded borrowers pay higher rates.

As of last week, 30-year fixed-rate jumbo loans averaged 7.43 percent, while regular 30-year loans that can be purchased by Fannie and Freddie averaged 6.5 percent, according to publisher HSH Associates. The spread between the two types of loans was 0.2 percentage points back in mid-July.

While the jumbo market may return to normal in the fall, that process is likely to take a while, said Keith Gumbinger, vice president of HSH Associates.

"This dislocation was a sudden event," he said. "Rebuilding the trust in what those markets represent will take a bit of time."

The Dow Jones industrial average tumbled Wednesday as Wall Street reacted to the home-sales report as well as to the Federal Reserve's beige book showing housing weakness throughout the nation.

Shares of Fannie Mae fell $2.66, or 4.1 percent, to $63.05, while those of Freddie Mac slid $2.30, or 3.7 percent, to $59.96.

In an effort to provide support to the mortgage market, Democratic lawmakers and the Realtors' association have called for changes to allow Fannie and Freddie to buy loans above the current limit in high-cost areas along the East and West coasts.

So far the Bush administration has rejected calls to raise this limit, as well as limits on the amount of mortgages and mortgage-backed securities that Fannie and Freddie can hold on their books.

Last week, Bush announced his administration's first attempt to help borrowers in danger of foreclosure.

He detailed plans to help about 80,000 additional borrowers by using the Federal Housing Administration to insure more loans.

Investors worldwide have been spooked by the U.S. mortgage market's problems. The Federal Deposit Insurance Corp. estimates 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes sharply higher monthly payments by the end of next year.

As of June, 17.5 percent of subprime loans given to borrowers with weak credit were either 60 or more days delinquent or in foreclosure — more than double last year's rate, according to FirstAmerican LoanPerformance, a research firm that tracks loans that aren't backed by Fannie Mae and Freddie Mac.

Information from Seattle Times business reporter Elizabeth Rhodes is included in this report.