In another sign the housing sector may be languishing – again – the Pending Home Sales Index (PHSI) dipped 1.4 percent in June to 99.3 from a downwardly revised 100.7 in May, the National Association of Realtors reported Thursday. Economists had expected a 0.9 percent increase to 101.6.

The original May report had the index at 101.9, returning to its level of March.

After positive reports earlier this month – an increase in builder confidence measured by the National Association of Home Builders’ Housing Market Index, a jump in starts and a pop in the median price of an existing home – housing statistics have faltered with a drop in sales in both new and existing homes.

Indeed, a drop in the PHSI reinforced Wednesday’s report showing a drop in new home sales for June. Both track contracts, not closings, and provide a current snapshot of homebuyer interest and a reflection of the economy.

The PHSI had been rising steadily until April. Existing home sales rose in the last half of 2010 before leveling.

That said, even with the decline in June, the index is up 9.5 percent on a year-year basis though the 12-month improvement in June was the weakest in five months.

Pending home sales are counted when sales contracts are signed, and are viewed as a leading indicator of existing home sales.

Recent PHSI reports suggest home re-sales should have been a bit stronger but existing home sales fell to an eight-month low in June tracking a month-month decline in thePHSI in April.

The drop in the PHSI was the second in the last three months and was widespread. The index fell in three of the four census regions, improving only in the West where it increased 2.6 percent. The index fell 7.6 percent in the Northeast, 2.0 percent in the South and 0.4 percent in the Midwest. On a year-year basis, the index was up in all four census regions led by a 17.3 percent improvement in the Midwest. It was up 12.2 percent year-year in the Northeast, 8.8 percent in the South and 3.0 percent in the West.

The PHSI has been drifting upward, albeit modestly for most of the past two years. The June drop coming in the middle of the traditional home buying season is a disappointing signal tempered further by the reality that a substantial number of sales contracts are failing to meet underwriting tests and/or other loan standards.

Lawrence Yun, NAR chief economist, blamed a lack of inventory for the drop in the index.

“Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” he explained. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

Yun also cited delays in the foreclosure process due to legal challenges.

“There have been some delays with recent foreclosure sales as banks take steps to ensure there are no paperwork problems,” he said. “This is causing an uneven performance in sales closings, which is likely to continue, but we also see notably higher levels of sales activity compared with a relatively flat performance in the preceding four years.”

The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.