Sales dropped 2.7 percent to a seasonally adjusted annual rate of 5.1 million in August, from a pace of 5.24 million in July, the National Association of Realtors said Thursday. Compared with a year ago, however, home sales are up 3.4 percent.
The results surprised analysts, who had expected sales to rise to an annual pace of 5.35 million, according to Thomson Reuters.
"We suspect it is just a temporary blip in the improving trend rather than a sign of renewed weakness," wrote Paul Dales, U.S. economist at Capital Economics.
In a positive sign, the inventory of unsold homes on the market fell to 3.6 million, from 4 million in July. That's an 8.5 month supply at the current sales pace, the lowest level in more than two years.
Nevertheless, there is a key unknown on the horizon. A $8,000 tax credit for new homeowners expires on Nov. 30. Congress is facing intense pressure from real estate agents and homebuilders to extend it, but it's unclear whether lawmakers want to spend more money to prop up the housing market.
First-time buyers have purchased almost one in three homes in August. Together with investors snapping up foreclosures, they have provided most of the momentum in the market this year.
Nationwide sales are up nearly 14 percent from their bottom in January, but are still down nearly 30 percent from their peak nearly four years ago. For the housing market to truly return to normal, said Lawrence Yun, the Realtors' chief economist, sales would need to rise to a pace of around 5.5 million to 6 million per year.
If buyers see clear evidence of stable prices, the housing market recovery can be self-sustaining, Yun said, adding, "We are not there yet."
Nationally, the median sales price was $177,700, down 12.5 percent from the same month last year. Prices were also down 2.1 percent from a month earlier.
The drop in sales last month may reflect delays in completing sales due to tough lending standards and new rules for appraisals. Real estate agents say new rules, effective May 1, that were designed to limit conflicts of interest in the appraisal process are delaying or undermining sales because appraisals are coming in too low.
That's what happened to Maria Jose Garcia, who just bought a three-bedroom house with a garden in a quiet neighborhood in West Park, a suburb of Fort Lauderdale, Fla.
Garcia signed a contract to buy her first home in early July but closing was pushed back twice because two appraisals came in below of the contract price. After negotiating with the seller, the price came down from $125,000 to $105,000.
"The whole time, I was worried, but those issues did not depend on me," said Garcia, 43, an office assistant at a rehabilitation center. "I was sure I was going to buy a house. It was just a matter of negotiating and keeping a good disposition."
Low mortgage rates are also helping more people like Garcia afford a home. Freddie Mac said Thursday that the average rate on a 30-year fixed-rate loan was 5.04 percent this week, unchanged from a weak earlier.
Foreclosures and other financially distressed sellers accounted for about 30 percent of the market last month. In the West, sales of homes under $100,000 were up 150 percent from a year ago. Sales of homes priced at over $250,000 were down nationally, with the biggest drop of nearly 40 percent coming among homes priced over $2 million.
With unemployment and foreclosures rising in the upper end of the housing market, "there will be plenty of more pain for higher-priced properties," wrote Joshua Shapiro, chief U.S. economist with MFR Inc.
Compared with a month earlier, the West posted the strongest results. Sales there were up nearly 3 percent. They fell by nearly 7 percent in the Midwest, more than 2 percent in the Northeast and 3 percent in the South.