July 8 (Bloomberg) -- Contracts to buy previously owned U.S. homes declined more than forecast in May, a sign prices that have been sliding for more than two years have yet to touch bottom.

The index of pending home resales fell 4.7 percent following a revised 7.1 percent gain in April that was greater than previously reported, the National Association of Realtors said today in Washington.

The prospect of further price declines may be discouraging offers, while rising mortgage rates and tougher lending standards make it harder to qualify for loans. Record delinquencies on home loans have led to concerns that Fannie Mae and Freddie Mac, the two biggest U.S. mortgage finance companies, may need to increase their capital by $75 billion.

``Homes are much more affordable, but they'll probably be even more affordable in six months' to 12 months' time, so it makes people reluctant to jump in,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said in an interview with Bloomberg Television. ``The message is that last month's big rise was not the signal that the market is starting to turn around. We've had a big correction this month.''

Economists had projected the pending sales index would fall 3 percent, according to the median forecast in a Bloomberg News survey of 38 economists. Estimates ranged from a drop of 6 percent to a 0.2 percent gain.

Pending resales were down 14 percent from May 2007, today's report showed.

Regional Breakdown

The measure dropped in all regions of the country, led by a 7.1 percent decline in the South. Pending resales fell 6 percent in the Midwest, 2.9 percent in the Northeast and 1.3 percent in the West. Compared with a year ago, contract signings were up 2 percent in the West and were lower in the other regions.

The pending home resales report is considered a leading indicator because it tracks contract signings. Closings, which typically occur a month or two later, are tallied in a separate report from the Realtors on actual home resales.

The Realtors group will release its report on June existing home sales on July 24. Purchases in May rose 2 percent to a 4.99 million pace, from a 4.89 million rate the prior month that was the lowest level in at least nine years. At the May sales rate, it would take 10.8 months to sell all the houses on the market.

Mortgage Rates

Continued declines in home prices and increases in mortgage rates will probably extend the slump in sales. The average rate on a 30-year fixed mortgage ended the month of June at 6.33 percent, up from an average 5.9 percent in the first week of May, according to Freddie Mac, the No. 2 U.S. purchaser of home loans.

Other measures also show sales may continue to decline. The Mortgage Bankers Association's index of applications for loans to purchase homes has fallen 10 percent since the beginning of May, nearing a five-year low at the end of June.

Slumping home construction will continue to hurt growth while falling property values undermine the consumer spending that makes up two thirds of the economy.

Home prices in 20 U.S. metropolitan areas fell in April by 15.3 percent from a year earlier, the most on record, the S&P/Case-Shiller home-price index showed on June 24.

Falling property values and tighter lending standards make it harder for people to refinance their home loans before their adjustable rate mortgages reset at higher rates.

Increased Foreclosures

That has pushed up foreclosures, adding to the glut of unsold properties. Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago, RealtyTrac Inc. said in a report on June 13.

One in every 483 U.S. households either lost a home to foreclosure, received a default notice or was warned of a pending auction, RealtyTrac said. That was the highest rate since the Irvine, California-based company began reporting in January 2005 and the 29th consecutive month of year-over-year increases.

``It's definitely a different kind of market,'' said Devin Reiss, owner of Realty 500 Reiss Corp. in Las Vegas. ``We used to sell homes in a day. Now, 50 percent of our sales are foreclosures.''

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: July 8, 2008 12:20 EDT