For the fourth straight month sales of existing homes weakened, partly reflecting turmoil in the subprime lending market.
The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4 1/2 years.
The slide doled the housing market its worst slump in 16 years.
The only glimmer of good news is that the median price of an existing home edged up slightly to $230,300 in June, a 0.1 percent increase from the year-ago median price.
Though that marks the first year-over-year price increase in 11 months, analysts cautioned that it would take more months to determine whether the downward trend in prices has finally stabilized.
Federal Reserve Chairman Ben Bernanke told Congress last week that he expected housing demand to stabilize and housing to be a less severe drag on economic growth in the coming months.
But private economists said a 3.8 percent drop raises serious questions about Bernanke's assessment. They noted that existing home sales were falling at an annual rate of 28 percent in the second quarter, the steepest plunge so far in the downturn.
"Housing is contracting at an accelerating pace, taking out with a vengeance the brief stabilization at the turn of the year," said Ian Shepherdson, chief economist at High Frequency Economics, a private forecasting firm.
The housing downturn comes after five boom years in which sales of both new and existing homes set records with home prices soaring by double-digit rates.
Starting in 2006, however, sales have slumped as mortgage rates rose and prospective buyers balked at the price levels they were seeing in many parts of the country.
Those problems have been exacerbated in recent months by spreading problems in the subprime mortgage market, which offered loans to buyers with spotty credit histories. Rising defaults in those areas are dumping more homes onto the market.
The sales declines covered all parts of the country. Sales were down 7.3 percent in the Northeast and 6.8 percent in the West. Sales fell 2.8 percent in the Midwest and 1.7 percent in the South.
Lawrence Yun, senior economist for the Realtors, said that potential buyers have been getting mixed signals about whether now is a good time to buy a home with mortgage rates rising and banks and other lenders tightening their standards — making it harder to qualify for a loan.
"It appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer," Yun said.
From NPR and Associated Press reports