By Ariana Eunjung Cha
Sales of previously built single-family homes plunged in July to their lowest level since May 1995 as job fears trumped today’s low mortgage interest rates and relatively affordable home prices.

The sales of existing single-family homes, condominiums and townhouses fell to a seasonally adjusted annual rate of 3.83 million, the National Association of Realtors reported Tuesday.

That’s a 27.2 percent drop from June, about twice as much as analysts surveyed by Bloomberg expected. That’s also a 25.5 percent drop from the same time a year ago. The sales of all these housing types combined was the lowest since the group started tracking the numbers in 1999.

The results, which measure only completed purchase transactions, are well below what experts who track the market projected. They capture the unease about the housing market’s recovery and the economy overall as unemployment remains stubbornly high.

Steven Ricchiuto, chief economist for Mizuho Securities in New York, said the drop was “so outside the statistically norm” that it took even the most pessimistic economists by surprise.

Scott Brown, chief economist at Raymond James & Associates, said the news shows “this is a pretty dicey time” for the U.S. economy.

And Paul Dales, an economist for Capital Economics, called the numbers “eye-wateringly weak.”

“It suggests that without the housing tax credit, housing market activity is very, very weak,” Dales said. “That would eventually lead to a double dip in house prices.”

Existing home sales surged in the early spring largely because of a lucrative tax credit program that targeted some first-time buyers and repeat buyers. Many economists predicted that home sales would drop briefly when the program expired April 30 and would then recover. But now, many are questioning how soon the rebound will occur, and July’s results add to those fears.

Sales fell in every region of the country, led by a 35 percent drop in the Midwest. In the Northeast, sales were down 30 percent ; in the West, 25 percent; and in the South, 23 percent.

First-time buyers, the group economists relied on heavily to help spur market sales, appear to be retrenching. Those buyers made up only a little more than 38 percent of sales in July, down from 43 percent in June.

Lawrence Yun, chief economist for the Realtors group, said the soft sales pace will likely continue through September. But he said it could pick up quickly, “provided the economy consistently adds jobs” now that mortgage rates are in the mid 4 percent range.

The only seemingly upbeat news from the Realtors’ report is that home prices held up in July. The national median existing home price for all house types was $182,600 in July, up 0.7 percent from a year ago.

But a growing number of economists expect home prices to fall going forward, especially since foreclosures are on track to top 1 million this year.

Foreclosures tend to drag down prices and add to the already bloated supply of homes.

Ricchiuto said the seemingly inconsistent drop in sales but increase in sales price in July may be related to the perception by homeowners that their house is worth more than it is.

“Part of the reason home sales are collapsing is because prices are not low enough to clear the market,” he said.

“Homes are still being pricedwithout taking into proper consideration the balance sheet of the consumer,” he said. “What consumer would buy them when they can’t afford them?”

The inventory of homes grew 2.5 percent in July. It would take 12.5 percent to sell all the homes available for sale at the current sales pace, up from an almost nine-month supply in June, the industry report said. A five- to six-month supply is the norm in a healthy market.

Meanwhile, foreclosures and other distressed sales made up 32 percent of purchase transactions in July, basically unchanged from June. But federal efforts to help troubled borrowers modify their loans have faltered, suggesting more foreclosures may be on the way.

Brown of Raymond James & Associates said there was an “unsual amount of uncertainty” ahead of these numbers. He had expected existing home sales to fall more modestly to an annual rate of 4.9 million.

“It’s one more piece suggesting we’ve hit a slow patch here. The economy appears to be at a crossroads,” he said. “We may muddle through for a while and gradually pick up steam, or we may stumble.”

The big question mark is the national psychology underlying the current economy, Brown said. “If consumers start to worry and save more and businesses worry and stop hiring expectations of a double-dip could become self-fulfilling.”

elboghdadyd@washpost.com

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