Anemic Home Sales Could Sink The Recovery...

With home sales plunging to their lowest level in 15 years, economists warn that a double-dip in housing prices is just around the corner, threatening to further slow the recovery. 

Existing home sales sank -27.2% in July, twice as much as analysts expected, to a seasonally adjusted annual rate of 3.83 million units. Two months after the end of the tax credit, sales are -34% below April's tax incentive-induced peak.

"Home sales were eye-wateringly weak in July," said economist Paul Dales of Capital Economics. "It is becoming abundantly clear that the housing market is undermining the already faltering wider economic recovery. With an increasingly inevitable double-dip in housing prices yet to come, things could get a lot worse." 

The sales pace of all homes -- single-family homes, town homes, condominiums, and co-ops -- is at the lowest since NAR began tracking the figure in 1999. Sales of single-family homes, which account for a bulk of the transactions, are at the lowest level since May 1995.  Inventory has also continued to climb, rising +2.5% to 3.98 million existing homes for sale. That represents a 12.5-month supply at the current sales pace, the highest since October 1982 when it stood at 13.8 months. A 6-month supply is considered normal. 

The housing market and the broader economy are closely intertwined. When housing prices collapse, so does the overall wealth and confidence of Americans.

"Falling housing prices strain the overall confidence in the economy and discourage Americans from spending," Dales said. "They also mean that banks lose money on their investments and curtail lending, meaning there is less money out there to invest and boost the economy."