Record plunge for home sales could weigh heavily on economic recovery

The pace of home sales in the United States took a sharp turn for the worse in July, falling a record 27 percent from June and raising new concerns about the economy's health.

Sales of previously owned homes fell to an annualized pace of 3.8 million, down from 5.3 million in June and 5.1 million a year earlier. Sales volume fell in all regions of the country, while the median selling price was $182,600, similar to where it stood both in June and a year earlier.

What's surprising is less the decline itself – forecasters had expected sales to cool after the expiration of a special tax credit for home buyers – as the magnitude. Housing-market forecasters had expected about 4.7 million sales for July.

STORY: Existing home sales down. But six cities defy housing gloom.

The July surprise is bad news for the economy in two ways. First, the housing market tends to mirror conditions in the overall economy, and this report amplifies concern that momentum is slowing in the second half of 2010. The stock market sagged further on the housing news Tuesday morning.

Second, in a look further ahead, the news suggests that working through a glut of unsold homes and foreclosed properties may take longer, and weigh more on consumer confidence, than some economists predicted.

The plunge in sales activity raises a stark question: What will it take to bring buyers back to the market?

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