NEW YORK (TheStreet) -- Pending home sales fell 1.3% in July, according to a National Association of Realtors report released Monday morning.

The index, which measures the number of contracts signed to buy previously owned homes in the U.S., fell 1.3% in July, month over month, to a reading of 89.7, from 90.9 in June. The figure was 14.4% higher than year-earlier levels, though last summer's data reflected a large fall-off in home sales after the springtime expiration of homebuyer tax credits.

Economists had expected the figure to fall 1.4%.

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Lawrence Yun, NAR chief economist, said sales activity is underperforming. "The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy," he said "We also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process."

Pending home sales are viewed as an indicator of future home sales since they reflect contracts -- not closings -- and generally occur with a lag time of one to two months.

The already-struggling housing market has another 15% decline in home prices already priced in

to homebuilder stocks, according to Stifel Nicolaus analyst Michael Widner.

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Widner believes the sentiment is "overly pessimistic," but "it is unclear to us what near-term catalyst might improve visibility." He added that "unusually unclear visibility and lack of willingness to own the group given that lack of clarity" has kept valuations among homebuilders cheap across the sector.

The analyst explained that most homebuilders, including

Toll Brothers

(TOL) - Get Report

, which posted a 54% quarterly profit rise last week though revenue missed expectations, are trading at unusually low multiples because of market expectations for "a further 15% decline in national home prices by our estimates."

Homebuilders are clearly in a rut, and signs of near-term improvement are few. Data released last week showed that

sales of newly built homes dipped 0.7% in July

-- the third consecutive month of declines -- to a five-month low.

"Unfortunately, none of the data we see suggest that there will be a significant turnaround anytime soon," Mike Schenk, vice president of economics and statistics with CUNA, told

TheStreet

recently. "While

mortgage interest rates are near all-time lows

and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected ... and permit activity suggest very little new construction on the horizon."

Data released earlier this month showed that

homebuilders began construction on 1.5% fewer homes in July while applications for building permits fell 3.2%

. The National Association of Home Builders (NAHB) reported that

homebuilder sentiment held steady at a low reading of 15 in August

as the usual suspects -- an oversupply of homes, inaccurate appraisal values and tight lending -- kept home purchasers at bay. The National Association of Realtors reported that sales of previously occupied homes unexpectedly fell 3.5% in July as potential homebuyers cancelled more contracts.

Stocks in the homebuilder sector were mostly higher Monday morning, including the

SPDR S&P Homebuilders

(XHB) - Get Report

and

iShares Dow Jones US Home Construction

(ITB) - Get Report

exchange-traded funds that tracks the sector. Even so, the ETFs remain around 70% and 80%, respectively, off their early 2006 peaks.

Among individual builders,

PulteGroup

(PHM) - Get Report

rose 1.6%,

D.R. Horton

(DHI) - Get Report

gained 3.4%,

Lennar

(LEN) - Get Report

, largely considered a leader among the homebuilders, added 3.5% and

Toll Brothers

(TOL) - Get Report

was 2.1% higher. Small-cap builder

KB Home

(KBH) - Get Report

and

Hovnanian Enterprises

(HOV) - Get Report

were also in positive territory, gaining 3.2% and 5.8%, respectively.

--

Written by Miriam Marcus Reimer in New York.

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