WASHINGTON — Existing home sales plunged to their lowest level in 15 years in July as inventories soared, painting a grim picture for the housing market absent government support in a stubbornly sluggish economy.
Home resales dropped a record 27.2% — nearly twice as much as analysts had expected — to an annual rate of 3.83 million in July, the National Association of Realtors said Tuesday. Meanwhile, inventories rose to 12.5 months from 8.9 months in June, pressuring already depressed home prices. Inventories are at their highest level in more than a decade.
"Historically July is the peak inventory month in any given year," NAR Chief Economist Lawrence Yun said.
Economists surveyed by Dow Jones Newswires had expected existing home sales to fall by 14.3% to an annual rate of 4.6 million.
Tuesday's data drove the Dow Jones Industrial Average down more than 100 points and pulled down yields on 10-year Treasury notes.
"The report shows the housing industry has hit more turbulence, is not leveling off and is worried about a nosedive," said Mitchell Hochberg, a principal at Madden Real Estate Ventures in New York. "Unemployment, foreclosures and shadow inventory are keeping consumers on the sidelines waiting for prices to drop further."
The realtors revised their existing home sales figures for June downward, saying existing home sales dropped to a 5.26 million annual rate instead of the initially estimated 5.37 million annual rate.
"The question is whether this pause is a temporary pause," Yun said. The National Association of Realtors is expecting sales to remain soft for much of the rest of the year.
The steep decline in sales in July reflects both a souring in the U.S. economic recovery and the expiration of a government tax credit program that has been supporting the housing market for more than a year.
The tax credits offered certain buyers up to $8,000 to sign a contract by April 30. Deals originally needed to close by June 30, but lawmakers pushed that deadline to Sept. 30.
Still, the tax credit's expiration drove pending home sales down 30% in May and caused a double-digit dive in mortgage application volumes even as interest rates hovered near their lowest levels in generations. July's existing home sales data reflects the May plunge in pending sales, which typically become existing sales within a couple of months.
Mortgage rates remain low, but lingering troubles in the labor market continue to restrain the nation's housing recovery. That trend likely will continue for some time.
The Federal Reserve, in its latest forecast, scaled back its growth projections, saying it expects the soft job market to continue to hold back economic progress.
In July, existing home sales dropped 29.5% in the Northeast, 22.6% in the South, 25% in the West and 35% in the Midwest.
On a year-over-year basis, July existing home sales were down 25.5% from an annual rate of 5.14 million in July 2009.
A growing number of the existing homes sold across the U.S. in July were distressed properties.
Median home prices in July rose 0.7% to $182,600.