Sept. 5 (Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in July by the most since records began in 2001, extending a U.S. housing slump that is weighing on credit markets and the economy.

The index of signed purchase agreements, or pending home resales, fell 12.2 percent to 89.9, the lowest since September 2001, after increasing 5 percent in June, the National Association of Realtors said today in Washington. The median estimate of economists polled by Bloomberg News projected a 2.2 percent drop.

More restrictions on obtaining loans and higher short-term mortgage rates may be worsening the housing slump, now in its second year. The lingering weakness in residential construction is threatening to slow consumer spending by driving down property values, increasing the risk the economy will stumble.

``The housing market is bad and is going to stay bad for some time,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, who forecast a 3 percent drop. ``This number does not look good for existing home sales for August.''

The median forecast was based on a survey of 26 economists. Estimates ranged from a drop of 4 percent to an increase of 1.5 percent.

Yields, Stocks Drop

U.S. Treasury securities extended gains and stock prices dropped following the report. The yield on the benchmark 10-year note fell to 4.48 percent at 10:06 a.m. in New York from 4.55 percent late yesterday. The Dow Jones Industrial Average was down 157 points, or 1.2 percent.

The National Association of Realtors 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-homes sales report tracks closings, which typically occur a month or two later.

``Our members are telling us some sales contracts aren't closing because mortgage commitments have been falling through at the last moment,'' said Lawrence Yun, a senior economist with the Realtors' group. ``There are continuing issues for subprime borrowers, but there are no serious problems for the majority of buyers who qualify for conventional financing.''

Yun also said there were signs the market had been ``stabilizing somewhat'' since mid August.

July Sales

Existing home sales fell 0.2 percent in July to an almost five-year low of 5.75 million at an annual pace, the group reported on Aug. 27. Sales were down 9 percent from the same time last year.

Sales of new homes, which make up 15 percent of the market, unexpectedly rose in July, according to figures from the Commerce Department. More increases are unlikely, economists said.

``Homebuilder optimism and the trend in mortgage rates point to the fact that housing is still struggling,'' Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report.

Builder sentiment reached a 16-year low in August and the rate on one-year adjustable mortgages climbed to a six-year high, according to industry figures.

Compared with a year earlier, pending home sales were down 16 percent.

Effect on Economy

Residential construction has subtracted from economic growth for six straight quarters, the longest stretch since 1982. Federal Reserve Chairman Ben S. Bernanke said last week that lending restrictions ``if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected.''

Bernanke, speaking Aug. 31 to the Kansas City Fed's annual symposium in Jackson Hole, Wyoming, also said the central bank ``will act as needed'' to prevent August's credit-market rout from undoing economic growth.

Traders and economists project Fed policy makers will cut the benchmark overnight lending rate between banks at or before their next meeting, scheduled for Sept. 18. On Aug. 17, the central bank reduced the rate charged on direct loans to banks to increase the availability of capital.

President George W. Bush on Aug. 31 said he will let the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, guarantee loans for delinquent borrowers. The new program will allow homeowners with a good credit rating who can't afford their current payments to refinance into FHA-insured home loans.

Today's report showed pending resales dropped in all four regions. They fell 21 percent in the West, 13 percent in the Midwest, 12 percent in the Northeast and 6.6 percent in the South.

Toll Brothers Inc., the largest U.S. luxury homebuilder, said Aug. 22 that third-quarter profit fell 85 percent. Revenue dropped 21 percent and order cancellations jumped to 24 percent, from 18 percent a year earlier.

``We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets,'' Chief Executive Officer Robert Toll said on a conference call.

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

Last Updated: September 5, 2007 10:19 EDT