Sales of existing homes tumbled 27.2 percent in July

Home sales plunged in July to record lows as buyer demand withered after the expiration of a federal home buyer tax credit - a drop that shows troublesome weakening in the housing market recovery.


Sales of existing homes tumbled 27.2 percent in July to a seasonally adjusted annual rate of 3.83 million units from 5.26 million in June, according to a report Tuesday from the National Association of Realtors. Sales are at the lowest level since the report began being released in 1999, and sales of single-family homes - which account for the bulk of transactions - are at the lowest level since May 1995.

"This qualifies as a double dip in housing," says Mark Zandi, with Moody's Analytics.com. "It's particularly disconcerting given that fixed mortgage rates are lower. The recovery is weakening. These are pretty ugly numbers."

Economic fundamentals aren't working to buoy the housing market, economists say, and the real engine that is needed to turn the recovery around is more private-sector jobs.

Economists say they were surprised by the size of July's drop in home sales, which indicates buyers have scant confidence in the housing market. Existing-home sales fell 35 percent in the Midwest in July, 29.5 percent in the Northeast; in the West, they fell 25 percent and they were down 22.6 percent in the South.

The number of homes on the market also grew, which tends to dampen prices. Housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. A six-month supply is considered normal.

One reason the market is hurting is that buyers and sellers are in a standoff over prices. Many sellers are reluctant to lower their prices. And buyers are hesitating because they think home prices haven't bottomed out.

"It really is a self-fulfilling prophecy," said Aaron Zapata, a real estate agent in Brea, Calif. "If all buyers perceive that home prices are coming down, then they will stop making offers - and home prices will come down."

Some economists say any turnaround in the housing market is going to take time. Sales are expected to perk up in October and November, but even then, so many homeowners have so little equity in their homes that many can't afford to buy a new home.

The median sale price was $182,600, up 0.7 percent from a year ago, but down 0.2 percent from June.

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