Feb. 7 (Bloomberg) -- Contracts to buy previously owned homes declined in December for a second consecutive month, signaling the worst housing slump in 25 years will persist well into 2008, economists said before a report today.

The National Association of Realtors' index of signed purchase agreements, or pending home sales, fell 1 percent during the month, according to the median forecast in a Bloomberg News survey. The gauge dropped 2.6 percent in November.

Concern about the economic outlook and the prospect of further declines in home prices may be keeping would-be buyers out of the market. A separate report today is forecast to show unemployment claims fell last week after reaching the highest level in more than two years.

``You've clearly seen some broadening of weakness in the economy the last couple of months and that should bring more weakness in housing,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``There's no question the labor market is weakening.''

The Realtors group is scheduled to release its report at 10 a.m. in Washington. Forecasts of economists polled in the Bloomberg News survey ranged from a drop of 3 percent to an increase of 1.8 percent.

The Labor Department is scheduled to release the weekly jobless claims report at 8:30 a.m. in Washington. Economists surveyed by Bloomberg News forecast initial filings fell to 342,000 from 375,000 a week earlier.

Slowing Labor Market

Claims at the projected level would still signal slowing in the labor market, economists said. The government reported Feb. 1 that the U.S. lost jobs in January for the first time in more than four years.

The housing slump is taking a toll on other sectors of the economy as well. The Institute for Supply Management said on Feb. 5 that its index of non-manufacturing businesses contracted at the fastest pace since the 2001 recession.

``We have obviously experienced a significant decline in the growth of overall economic activity since August, with much of the decline occurring in the last two months,'' Federal Reserve Bank of Richmond President Jeffrey Lacker said Feb. 5 to banking leaders in Charleston, West Virginia. He also said he sees ``the possibility of a mild recession'' and further reductions in interest rates ``may be warranted.''

Fed's Rate Cuts

The Federal Open Market Committee lowered the benchmark lending rate by a half point to 3 percent on Jan. 30, following a three-quarter-point inter-meeting cut Jan. 22. The combined 1.25 percentage-point reduction in nine days is the fastest decline in the federal funds rate in the 20 years it has been used as the Fed's main monetary policy tool.

The cuts in the benchmark interest rate may help bring down mortgage rates further. The rate on a 30-year fixed mortgage fell to 5.48 percent the week ended Jan. 24, the lowest level in almost four years.

Even so, potential buyers may be holding out for lower prices. Elevated inventories of unsold homes suggest prices may fall further on new and existing homes, economists said.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The group's existing-home purchases report tracks closings, which typically occur a month or two later.

Another leading indicator of the housing market, new home sales, fell in December to a 12-year low, according to Commerce Department statistics.

Homebuilder Pulte Homes Inc. last week reported its fifth consecutive quarterly loss because of falling sales. Chief Executive Officer Richard Dugas forecast a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

Bloomberg Survey

=============================================
                           Initial  Pending
                            Claims    Homes
                            ,000's     MOM%
=============================================
Date of Release              02/07    02/07
Observation Period         Feb. 3      Dec.
---------------------------------------------
Median                         342    -1.0%
Average                        342    -1.1%
High Forecast                  360     1.8%
Low Forecast                   320    -3.0%
Number of Participants          39       33
Previous                       375    -2.6%
---------------------------------------------
4CAST Ltd.                     340    -1.5%
Action Economics               335     0.2%
AIG Investments               ---      1.8%
Aletti Gestielle SGR           345     ---
Banesto                        350    -0.5%
Bank of Tokyo- Mitsubishi      330     ---
Barclays Capital               330     ---
Bear, Stearns & Co.            330     ---
BMO Capital Markets            350    -3.0%
BNP Paribas                    345     ---
Briefing.com                   350     ---
CFC Group                      330    -2.5%
Citi                           350     ---
Commerzbank AG                 340     0.0%
Credit Suisse                  350     ---
DekaBank                      ---     -2.0%
Desjardins Group               342     ---
Deutsche Bank Securities       320    -2.0%
Dresdner Kleinwort            ---     -1.0%
DZ Bank                       ---     -2.5%
First Trust Advisors           351     ---
Fortis                        ---      0.0%
FTN Financial                 ---      1.0%
H&R Block Financial Advis      340    -1.0%
High Frequency Economics       350    -2.0%
HSBC Markets                   355     ---
IDEAglobal                     325    -1.0%
Informa Global Markets         350    -1.2%
ING Financial Markets         ---     -1.0%
Insight Economics              335     ---
J.P. Morgan Chase              350    -2.0%
Janney Montgomery Scott L     ---     -2.5%
JPMorgan Private Client       ---     -0.5%
Landesbank Berlin              345     ---
Lehman Brothers                325    -1.5%
Lloyds TSB                     356    -2.0%
Maria Fiorini Ramirez Inc      350     ---
Merrill Lynch                  345    -2.6%
MFC Global Investment Man      350    -1.0%
Moody's Economy.com            360    -1.0%
RBS Greenwich Capital          335     ---
Ried, Thunberg & Co.           360    -0.5%
Societe Generale               335     ---
Stone & McCarthy Research      340     ---
Thomson Financial/IFR          330     0.5%
UBS Securities LLC            ---     -1.5%
Unicredit MIB                  325     ---
University of Maryland        ---     -0.6%
Wells Fargo & Co.              335     0.2%
Westpac Banking Co.           ---     -2.0%
Wrightson Associates           340    -0.5%
=============================================

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: February 7, 2008 00:11 EST