The National Association of Realtors said Tuesday that the seasonally adjusted annual sales rate of 3.83 million was 25.5 percent below the level of July a year ago.

The financial markets took the news badly, with the Dow Jones Industrials down about 100 points in early afternoon trading.

July was the first month that buyers could not qualify for a tax credit of up to $8,000, so analysts were expecting weak results. But their consensus called for a decline of about 13 percent.

Jennifer H. Lee, senior economist for BMO Capital Markets, called the numbers “truly gut-wrenching.”

Those on the front lines of real estate describe an absolute standoff between buyers and sellers.

“What few buyers are out there circle a listing like a vulture, waiting from the day of its debut until it’s left for dead, contacting us only after it has left the market to ask what it sold for and whether it’s taking backup offers,” said Glenn Kelman, chief executive of the online brokerage Redfin.

Mr. Kelman noted that what made the sales drop “even more breathtaking” was that it was happening in July, which is typically when demand peaks.

“Prices will have to drop again in most markets before buyers come back in force, and so sales volume will probably be in the tank at least until next spring,” he said.

Housing prices have been relatively stable for most of the last year. But even before the July drop in sales, analysts were expecting prices to fall another 5 or 10 percent this winter.

July sales were down 27.2 percent from June. It was the lowest rate for existing-home sales, which include houses, condos, co-ops and town houses, since 1999. For sales of single-family homes, it was the lowest rate since 1995.

The number of homes on the market increased only slightly but the large drop in sales was enough to push inventory levels up to 12.5 months. A normal market has an inventory level of less than six months.

Higher inventories tend to cause prices to decline, as many sellers compete to take advantage of fewer buyers.

The drop in sales came despite the lowest mortgage rates in decades.

The Realtor group was optimistic the fall-off would be temporary, as long as the economy improves — a rather big “if.”

“Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” the group’s chief economist, Lawrence Yun, said in a statement.

From USA Today (Click here for the story):

Home sales plunge 27%, to lowest rate on record

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% in July to a seasonally adjusted annual rate of 3.83 million units from 5.26 million in June, according to a report Tuesday by 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 "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.

"Jobs, jobs, jobs," says Robert Dye, senior economist with PNC Financial Services Group, adding that government stimulus efforts such as another tax credit are unlikely to create lasting benefits. "Another tax credit will pull demand forward and then a hollowing out (of sales) again."

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% in the Midwest in July, 29.5% in the Northeast; in the West, they fell 25% and they were down 22.6% in the South.

"This is extraordinary, how low the demand is, " says Joel Naroff, of Naroff Economic Advisors. "The (housing) sector is still flat on it's back."

The number of homes on the market also grew, which tends to dampen prices. Housing inventory at the end of July increased 2.5% 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, California. "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.

"Even if you have 10% (equity) left in your house, you don't have enough to get you to another house unless you downsize dramatically," Naroff says.

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

Prices and sales in major metropolitan areas

Metro area
Median Price
Change from 1 yr ago

July '09
Jul '10
Dallas-Ft. Worth
Kansas City
Miami-Ft. Lauderdale
Minneapolis-St. Paul
New Orleans
New York-N. New Jersey-Long Island
San Antonio
San Diego
St. Louis
Washington, DC
Source: National Association of Realtors

Contributing: Associated Press