24 August 2010 Last updated at 17:01 ET

US existing home sales drop to 10-year low

The end of tax credits for home buyers has hit the US housing market

Sales of existing homes in the US plunged 27.2% in July compared with June to their lowest level in more than 10 years, figures suggest.

Home sales completed in the month stood at an annualised rate of 3.83 million, according to the National Association of Realtors (NAR).

The main reason for the drop was the end of tax credits designed to boost sales, the body said.

Despite that, the figures added to fears about the US economic recovery.

Apprehension about weak housing figures pushed Wall Street lower in early trading and confirmation of the record low sales in the form of the NAR report sent shares down further.

The main Dow Jones index closed down 134 points, or 1.3%, at 10,040.

"I think [the July figure] is just suggestive of an economy that is definitely slowing down," said Cary Leahey at Decision Economics.

"Unfortunately, it is a situation where we can't have a meaningful recovery without a meaningful consumer recovery, and we can't have a meaningful consumer recovery without a recovery in housing."

Greg Salvaggio at Tempus Consulting said: "There is really nothing good that can be said about these numbers."

Tax credits

The NAR presents monthly sales figures as an annualised rate. This represents what the total number of sales for a year would be if the relative pace for that month were maintained for 12 consecutive months.

Home sales in July were at their lowest level since the NAR began collating its existing homes sales figures in 1999, and were 25% lower than in the same month a year earlier.

July was also the third month in a row that sales have fallen.

The drop in sales coincides with the end of tax credits for homebuyers, which expired in May.

"Consumers rationally jumped into the market before the deadline for the tax credit expired," said Lawrence Yun, the NAR's chief economist.

"Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September."

However, he said that lending conditions in the housing market meant sales could pick up.

"Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs."

Slowing growth

However, many economists are rather gloomy about the US jobs market.

The US economy shed 131,000 jobs in July, the second month in a row that jobs had been lost.

Recent figures also showed that economic growth in the US slowed between April and June, with GDP growing by an annualised rate of 2.4% compared with 3.7% in the previous quarter.

Weaker-than-expected retail sales figures for July also added to concerns over the strength of the recovery of the world's largest economy.