The end of a popular government stimulus program drove home sales in July to their lowest levels in more than a decade, fueling fresh concerns about the economic recovery.
Home sales fell 27.2% nationwide from a month earlier, the National Assn. of Realtors reported. That was a much bigger drop than expected, as the boost evaporated from a now-expired federal tax credit that had been driving sales this spring. The plunge came despite rock-bottom rates on home loans.
Concern over the summer swoon reverberated from Wall Street to the White House. The Dow Jones industrial average briefly slid below the 10,000 benchmark and was down 1.3% on the day.
"You are seeing the sales drop off a cliff again, and that is really starting to scare people," C.J. Jones, head of institutional trading at Nollenberger Capital Markets, said Tuesday. "Are we going to have a double dip? Nobody knows."
White House Deputy Press Secretary Bill Burton acknowledged that the drop-off probably was largely due to the expiration of the home-buyer tax credit and called the 27.2% decline a "tough number."
"There's a lot more work yet to do," Burton said.
Randi Young didn't need to see the latest sales figures to know the market has cooled.
Young, 63, listed her three-bedroom, two-bathroom house in Woodland Hills for $719,000 last month because she plans to take a new job as a hospital administrator in Tennessee.
She has yet to receive one offer on her property, she said, even though she and her agent believe the price is in line with recent sales.
"I may have to take a loss on the property in order not to be supporting two households," she said, adding that she was fearful of having to rent it. "I don't want to be in a situation where I get the renter from hell; then I have the expense of having to repair the damage."
The Realtors association said the seasonally adjusted annual rate of sales was 3.83 million units in July, not only a big drop from June but also a 25.5% plunge from July 2009.
That was the lowest sales level since 1999. The sales rate for single-family homes, which accounts for the bulk of sales, was at its lowest level since May 1995, the group said.
Dan Greenhaus, chief economic strategist for New York brokerage Miller Tabak & Co., called the July downturn "a near, if not outright, collapse in housing."
July was the third consecutive monthly decline after the April 30 expiration of the federal tax credit, which offered up to $8,000 for certain buyers.
Many people who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to boost purchase figures. With many of those deals now apparently closed, the market is faced with standing on its own.
Real estate experts said the tax credits led many buyers to speed up their plans to buy houses — a welcome development over the spring, but one that is now sapping demand.
A few months ago "we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated," said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet.
"Buyers were borrowing the money from a family member and promising to pay it back when the tax credit came through," he said. "People still do not have cash to make a down payment."
The worst drop was in the Midwest, which recorded a 35% decrease in sales of previously owned homes in July from June. The West fared better with a 25% decline. Sales fell 29.5% in the Northeast and 22.6% in the South.
The one bright spot of the report was that the national median home price for all housing types was $182,600 in July, up 0.7% from a year ago. Sales of distressed homes — those sold out of a foreclosure or when the seller is in default — accounted for 32% of sales in July, unchanged from June.
Although housing has historically given the U.S. economy a boost out of prior recessions — as low interest rates spurred buyers and new home construction — that does not appear likely to be the case this time around.
With demand faltering, many economists now expect that home prices — generally on the rise for the last year — may retreat again.
"The tax credit pulled a lot of purchases forward, so people rushed to buy a home to qualify for the credit and it would have been a weak market otherwise," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "Now we are looking at a very weak market and, obviously, people have to sell so we are probably going to see a plunge in prices through 2010."
The question for some is: Can the housing decline derail the fledgling economic recovery?
"I don't think a double-dip in housing necessarily drags the rest of the economy with it," said Nigel Gault, chief U.S. economist for consultant IHS Global Insight. "But clearly it doesn't help."