The number of Americans entering into contracts to buy previously owned homes plunged in July by the most since records began in 2001, worsening the two-year housing recession.

The National Association of Realtors’s index of signed purchase agreements dropped 12.2% after gaining 5% in June, the group said yesterday in Washington. The decline was more than five times the median forecast of economists surveyed by Bloomberg News.

Stocks extended their retreat and Treasury notes jumped as traders speculated that economic growth, already jeopardized by the sudden increase in credit costs last month, will suffer even more after the collapse of the subprime mortgage market.

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

The median forecast was for a decrease of 2.2%, according to a survey of 26 analysts. Estimates ranged from a drop of 4% to an increase of 1.5%.

In a sign the labor market is softening, ADP Employer Services projected companies in America added the fewest jobs in August since 2003. The 38,000 increase was less than forecast and followed a revised gain of 41,000 for the prior month.

The ADP figures prompted economists to cut their estimates for employment growth in advance of this week’s Labor Department report. The median forecast is for job growth of 105,000 in August, compared with 108,000 before the ADP number.

The Federal Reserve found the effects of the August credit-market rout on the broader economy “limited” beyond the housing industry, according to its regional business survey issued yesterday. “Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited,” the Fed said in the survey, which concluded before August 27. “Economic activity has continued to expand” nationwide, the Fed said .

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,” a senior economist with the Realtors group, Lawrence Yun, said.