Home sales plummet to lowest rate on record

by Stephanie Armour - Aug. 24, 2010 10:45 AM
USA TODAY

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 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.

"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."

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