Sept. 9 (Bloomberg) -- Fewer Americans signed contracts to purchase previously owned homes in July as harder-to-get financing kept would-be buyers from taking advantage of lower prices.

The index of pending home resales fell 3.2 percent after rising 5.8 percent in June, the National Association of Realtors said today in Washington. A separate report showed inventories at U.S. wholesalers piled up twice as fast as forecast in July as their sales slid.

Today's housing figures help explain why the government took over Fannie Mae and Freddie Mac two days ago. Policy makers are aiming to stem the increase in mortgage rates triggered in part by the turmoil that engulfed the two companies, which make up almost half the $12 trillion U.S. mortgage market. Rates have dropped since Treasury Secretary Henry Paulson's intervention.

``The market is still showing a lot of fragility,'' said Jeffrey Roach, chief economist at Horizon Investments in Charlotte, North Carolina, who forecast the pending sales gauge would drop 3 percent. ``The credit crunch is causing some of these borrowing costs to remain higher and that's part of the reason people are hesitant to jump in.''

Stocks dropped and Treasuries rose. The Standard & Poor's 500 Stock Index lost 0.8 percent to 1,257.41 at 10:32 a.m. in New York. Benchmark 10-year Treasury notes yielded 3.66 percent, down from 3.69 percent late yesterday.

Inventories Jump

The Commerce Department said that wholesale inventories rose 1.4 percent, led by higher stockpiles of automobiles, machinery and petroleum, after an increase of 0.9 percent in June. Sales dropped 0.3 percent, the most since February.

Economists had projected the home-sales index would fall 1.5 percent, according to the median of 39 forecasts in a Bloomberg News survey.

Thirty-year fixed-rate mortgages averaged 6.29 percent in July, up from an average of 5.81 percent in the first half of the year, according to Bankrate Inc. Rates fell to 5.88 percent yesterday.

As home-loan losses mount, banks are reducing lending. Wachovia Corp. in June stopped offering option adjustable-rate mortgages, which let borrowers skip part of their payment and add the balance to principal. Chief Executive Officer Robert Steel said today the Charlotte, North Carolina, bank next year will cut $1.5 billion of expenses as it's ``tapping the brakes'' on risk.

Pending resales were down 6.8 percent from July 2007, reflecting declines in every region except the West, today's housing report showed.

Compared with June, resales dropped the most in the West, where they were down 10.6 percent. They fell 7.5 percent in the Northeast and were unchanged in the South. Pending sales increased 2.8 percent in the Midwest.

Leading Indicator

Pending resales are considered a leading indicator because they track contract signings. Closings, which typically occur a month or two later, are tallied in a separate report from the Realtors.

``The housing correction poses the biggest risk to our economy,'' Paulson reiterated on Sept. 7 when he announced the takeovers of Fannie and Freddie. The Treasury will also start purchasing mortgage-backed securities issued by the two companies to ``support the availability of mortgage financing for millions of Americans,'' he said.

Figures on August existing home sales are due from the NAR Sept. 24. Purchases in July rose 3.1 percent to a 5 million annual pace, with at least one-third of the purchases coming from foreclosed properties.

Supply Glut

At the July sales rate, it would take 11.2 months to sell all the houses on the market, about twice the supply that reflects a balanced market, according to the agents' group.

Other measures also show how bank seizures may push down home prices and suppress sales. Foreclosures increased to the fastest pace in almost three decades during the second quarter, the Mortgage Bankers Association in Washington said in a report last week.

Home prices in 20 U.S. metropolitan areas fell in June by 15.9 percent from a year earlier, the most on record, the S&P/Case-Shiller home-price index showed on Aug. 26.

Homebuilders are struggling to maintain profits as they compete with a glut of unsold properties on the market. Toll Brothers Inc., the largest U.S. luxury homebuilder, reported its fourth straight quarterly loss last week.

``Weak consumer confidence has kept many potential buyers from taking advantage of the current buyers' market,'' Chief Executive Robert Toll said on a conference call with analysts Sept. 4. ``Once the supply of foreclosed inventory is exhausted, we believe that favorable demographics will kick in and the housing market in general will begin to recover.''

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

Last Updated: September 9, 2008 11:26 EDT