March 6 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes was unchanged in January, signaling a pause in the housing slump that's causing the economy to stumble.

The National Association of Realtors' index of signed purchase agreements held at 85.9, higher than forecast and the second-lowest level since the Chicago-based group began keeping records in 2001.

The housing recession, into its third year, will deepen as a glut of unsold properties causes prices to keep dropping and prompts builders to cancel projects. The report underscores why Federal Reserve Chairman Ben S. Bernanke has said the central bank is ready to reduce interest rates again and urged lenders this week to lower the principal on some troubled loans.

``It's welcome news, but it's premature to state with confidence that housing is about to bottom,'' John Lonski, chief economist at Moody's Investors Service in New York, said in an interview on Bloomberg Television. ``If I could have three consecutive monthly increases in the index of pending sales, then I would state with confidence that housing is indeed forming a bottom.''

Economists surveyed by Bloomberg News forecast pending sales would fall 1 percent, according to the median forecast of 27 estimates. Projections ranged from a drop of 3 percent to an increase of 1.5 percent.

Compared with a year earlier, the measure was down 20 percent. The index reached a record low of 85.8 in August. The Realtors' group today revised figures back to 2005.

2008 Forecast

Mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable-rate loans walked away from properties before their payments rose, the Mortgage Bankers Association said today. The share of loans entering foreclosure jumped to 0.83 percent of all mortgages in the fourth quarter, the highest ever, from 0.54 percent a year earlier, the group said in a report today.

Stocks fell and bonds rose after the reports. The Standard and Poor's 500 index dropped 2.2 percent to end at 1,304.3, the lowest closing since September 2006. The yield on the 10-year note fell to 3.58 percent from 3.67 percent late yesterday.

The Realtors' group forecast existing-home sales this year will fall 4.8 percent to 5.38 million, unchanged from their prediction last month. Builders will break ground on 1.01 million houses, fewer than previously estimated and down from 1.35 million last year, the Realtors also forecast.

Rising Unemployment

The number of Americans filing first-time claims for unemployment benefits last week dropped to a level that still signals the job market is weakening. Initial jobless claims decreased to 351,000, compared with an average 322,000 per week in 2007, according to Labor Department data issued today.

Total benefit rolls rose for a third straight week, to the highest level since September 2005.

Pending resales fell in two of four regions. Purchases decreased 6.1 percent in the South and 4.1 percent in Northeast. They rose 13 percent in the West and 0.6 percent in the Midwest.

The figures are ``good news, but tighter restrictions and higher rates by late February point to another wave of sales weakness to come,'' said Christopher Low, chief economist at FTN Financial in New York.

For those willing to take a risk, lower property values and falling rates have made houses more affordable. The Realtors' housing affordability index, which compares prices and mortgage rates to household income, rose in January to an almost four- year high.

Leading Indicator

The agents' group began reporting pending home resales in March 2005 and has supplied historical data back to January 2001. The gauge is considered a leading indicator because it tracks contract signings, while the sales report tracks closings, which typically occur a month or two later.

Purchases of existing homes fell 0.4 percent in January to a 4.89 million rate, 33 percent below the peak reached in September 2005, the Realtors' group said last month.

Nationally, home prices fell 9 percent in the fourth quarter from a year earlier, the biggest decline in 20 years of record-keeping, according to the S&P/Case-Shiller home-price index. Economists at Lehman Brothers Holdings Inc. forecast prices will decline another 10 percent.

Falling prices are contributing to the drop in sales as would-be buyers leave the market in anticipation of even bigger decreases. The drop in property values also leads to an increase in foreclosures as owners walk away from mortgages that are larger than the value of their homes.

More Trouble Ahead

``Delinquencies and foreclosures likely will continue to rise for a while longer,'' Bernanke told bankers this week in Orlando, Florida. The number of properties going into foreclosure will probably surpass last year's estimated 1.5 million, he said.

Bernanke urged lenders and mortgage-service companies to forgive portions of outstanding loans that are in danger of defaulting to reflect the drop in values.

Another Fed policy maker took up the call today. Boston Fed Bank President Eric Rosengren told a conference in Quincy, Massachusetts that he supports negotiated workouts between borrowers and lenders because falling home prices are reducing refinancing options for homeowners.

Declining home equity and stricter lending rules may also be part of the reason why consumer spending is weakening. The slowdown is pushing the economy closer to recession.

Builders are advocating even more aggressive government action to revive the industry. Congress should create tax breaks for buyers of new homes, National Association of Home Builders Chief Executive Officer Jerry Howard said this week in a conference call.

``Policy makers need to act quickly, and that position is underscored by the fact that housing has led us into and out of every economic recession in history,'' Howard said.

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

Last Updated: March 6, 2008 16:35 EST