The number of Americans signing contracts to buy previously owned homes dropped to the lowest level on record in August as the housing recession deepened.

"The existing homes market is now in free fall," said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., in Valhalla, N.Y. "The downside from here is still substantial."

The National Association of Realtors' index of signed purchase agreements fell 6.5 percent from the previous month, the group said today in Washington. The decline was more than economists anticipated and pushed the measure to the lowest level since the organization began tracking purchases in 2001. The gauge plunged 11 percent in July.

Higher credit costs and lending restrictions after the collapse in subprime mortgages may push the industry downturn well into 2008. Market futures contracts show the Federal Reserve will probably cut rates later this month to avert spillover from the credit squeeze and keep the broader economy expanding.

Compared with a year earlier, pending home sales were down 22 percent. Purchases declined in all four regions of the country, led by a slide of 9.5 percent in the South. The smallest drop was in the West, which notched a fall of 2.7 percent.

So far, the Fed's half-point rate cut on Sept. 18 has failed to lower mortgage rates and boost demand. Average 30-year, fixed-rate mortgage rates ended last week at 6.42 percent, compared with an average 6.3 percent the prior week, according to Freddie Mac.

Buyers have been further constrained by the tighter lending standards and the shutdown of mortgage lenders such as American Home Mortgage Investment Corp. in early August that closed off access to credit.

"Fewer contracts were being written because of mortgage- availability issues," said Lawrence Yun, a senior economist at the real estate agents group. "More than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments" from lenders.