Pending home sales surged in August to their highest level since June 2007, but economists said the rise is not a sign of a turnaround in housing.

The Pending Home Sales Index jumped 7.4 percent to 93.4 in August from 87.0 in July. The index was up 8.8 percent from a year ago. The index is compiled by the National Association of Realtors and is based on sales that were contracted but not completed during the month.

The lift in pending homes sales was due to buyers responding positively to a drop in home prices and interest rate declines in the wake of the government’s takeover of Freddie Mac and Fannie Mae, said Walter Molony, spokesperson for the National Association of Realtors.

Analysts blamed an increase in foreclosures for the rise in pending sales and warned that the August numbers do not reflect the worst of the credit crisis in September and October.

David Oppenheim, an analyst at Credit Suisse Group, said in a research note that the areas seeing the biggest jumps in pending sales correlate with the country’s highest foreclosure rates.

“Is there an increase because those areas are so great now, or those areas are so foreclosure-rich?” Oppenheim wrote, “Unfortunately, it’s the latter.”

Pending home sales rose the most in the West, with an 18.4 percent jump in August from the prior month, followed by the Northeast with an 8.4 percent rise. The Midwest saw a more modest rise of 3.6 percent from July, and the South trailed with a 2.3 percent increase.

Laurenti said he does not expect for most of the pending sales to be completed due to tightened mortgage lending standards in the current credit crunch.

With unemployment increasing and the financial markets in turmoil “the housing market will not be good until at least 2010,” Laurenti said.

Credit Suisse Group analysts wrote Wednesday in a research note the brisk foreclosure sales will exert more downward pressure on the housing market. 

“While we are encouraged that the lower home prices on the foreclosure sales have improved affordability back to attractive levels … we believe there will likely be a painful further adjustment for traditional sellers as foreclosures are typically sold at least 20 percent below current market prices,” according to the research note.

JPMorgan Chase and Co. analysts agreed that foreclosures “will result in continued pricing pressure on overall home prices, resulting in further large impairment charges for the builders.”

For the Midwest, Laurenti is forecasting hard times ahead. Since the Midwest has been the manufacturing heart of the U.S., Laurenti said he expects declining exports amid a stressed global economy to hit this region harder than others. With fewer exports, there will be more layoffs and this means fewer housing sales, Laurenti said.

While downtown Chicago real estate sales are still thriving, Laurenti said sales are declining in the suburbs.

Nationwide, The National Association of Realtors is forecasting falling home prices in 2008 followed by stagnation in the beginning of 2009. The group expects the housing market to begin to stabilize by the latter half of 2009, Molony said.