Sales of previously owned homes plunged 27.2% nationally in July -- fallout from the expiration of a popular federal tax credit that had fueled the market for much of the year.
The big drop, which was worse than what many analysts had expected, sent stock markets tumbling Tuesday morning as investors feared a double dip in housing. The blue-chip Dow Jones industrial average fell more than 1%, as did the S&P 500, a broader measure of stocks.
The National Assn. of Realtors said that the seasonally adjusted annual rate of sales was 3.83 million units in July, a drop from the downwardly revised 5.26-million-unit rate in June and a 25.5% drop from the 5.14-million-unit level in July 2009.
It was the lowest sales level since 1999. The sales rate for single-family homes -- which accounted for the bulk of sales -- was at its lowest level since May 1995.
The July plunge was the third consecutive monthly decline following the April 30 expiration of the tax credit, which offered up to $8,000 for certain buyers. The credit was extended and expanded by Congress last year to help prop up the housing market.
"From our vantage point, the first-time home-buyers credit pulled forward demand -- by definition this is what stimulus measures achieve -- however the issue this time is that there was so little demand to be pulled forward, the credit has left no demand for the summer," Dan Greenhaus, chief economic strategist for Miller Tabak + Co., wrote in a research note Tuesday morning. "The result is exactly what we're seeing: a near, if not outright, collapse in housing."
Total housing inventory jumped 2.5% at the end of July to 3.98 million homes available for sale, representing a 12.5-month supply at the current pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9% below the 4.58 million in July 2008.