Sales of previously owned homes plunged 27% in July, twice as much as forecast, evidence foreclosures and tepid job growth are depressing the market.
Purchases fell to a 3.83 million annual pace, the lowest in a decade of record keeping and worse than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the National Association of Realtors showed Tuesday.
Demand for single-family houses dropped to a 15-year low and the number of homes on the market swelled.
A tax credit of up to $8,000 boosted sales earlier in the year, pulling forward demand and indicating additional advances will prove difficult.
Mortgage rates at record lows have provided scant relief to the industry as unemployment hovers close to 10%, foreclosures hold near all-time highs and the economy cools.
"This is a devastating reading on the U.S. housing market," said Derek Holt, an economist at Scotia Capital Inc. in Toronto.
"There's such an inventory overhang, it shows there will be pressure on prices" in the months ahead.
The pace of sales of existing homes is the slowest since comparable records began in 1999.
Purchases of single-family homes dropped to a 3.37 million annual rate, the lowest since May 1995.
Compared with a year earlier, sales of existing homes fell 26%.
The median price increased 0.7% last month, to $182,600, from July 2009.
The number of previously owned homes on the market rose 2.5%, to 3.98 million.
At the current pace it would take 12.5 months to sell those houses, the highest supply since at least 1999.
In June the inventory was 8.9 months' worth.
At 11.9 months, the supply of single-family homes was the highest since 1983, the Realtor group said.
Sales last month fell in all four U.S. regions, Tuesday's report showed. Foreclosures accounted for 22% of total purchases in July and short sales 10%, the Realtor group said.
Purchases will be "soft for at least two more months as the housing market works through the effects of the end of the tax credit," Lawrence Yun, the Realtor group's chief economist, told reporters at a press conference.
Foreclosures and short sales are lifting the so-called shadow inventory, and competing with other properties on the market.
Home seizures increased almost 4% in July from the previous month, the most since March. A total of 325,229 properties got a notice of default, auction or bank repossession, RealtyTrac Inc. said Aug. 12.
The timing of the tax incentive has caused wide swings in the data for sales of existing homes.
After surging to a two-and-a-half-year high of 6.49 million in November, the month of the credit's initial expiration, purchases dropped for the next three months.
Demand picked up in March and April, the deadline for signing contracts, before slipping again.
The June 30 deadline to close deals, which is when sales of existing homes are tabulated, was extended to the end of September to ensure prospective buyers had enough time to complete transactions.
Even so, there was a rush to close ahead of the initial expiration date, because Congress didn't pass the extension until July.
Residential real estate may keep struggling for the rest of this year. Into "2011 and beyond, it is difficult to determine," Richard Dugas, chief executive at Pulte Group Inc., said in an Aug. 20 interview. Pulte is the largest U.S. home builder by revenue.
"Demand is low across the country," Dugas said. "You have record-low interest rates and excellent pricing, but consumer confidence eased. We really need the economy to improve and job creation to take hold before people feel comfortable stepping into a home."