The National Association of Realtors said Tuesday that its seasonally adjusted index of sales agreements for previously occupied homes dipped 2.6 percent to a reading of 75.7.
That was the lowest on records dating back to 2001 and down nearly 19 percent from the same month a year earlier. The index has fallen by more than 40 percent from its peak in April 2005. May's reading was revised slightly downward to 77.7.
High unemployment, weak job growth and tight credit have hurt the housing market. Sales picked up in the spring when the government was offering tax credits of up to $8,000. However, once the tax credits expired on April 30, sales plunged.
Economists say the government incentives prompted many buyers who might have signed contracts during May and June to move their purchases up. That's one reason for the sharp decline.
But they also point to the growing inventory of unsold homes on the market. It has risen to almost 4 million. That's nearly a nine-month supply at the current sales pace, the highest level since August. It compares with a healthy level of about six months. And that doesn't include millions of foreclosed homes that have yet to go onto the market.
Many analysts believe the number of homes for sale or headed for foreclosure is so high that prices will slip this fall and hit the bottom by early next year.
"There's too much supply for the demand that's there," said Michael Feder, chief executive of Radar Logic Inc., which tracks the housing market. "That's not a dynamic in which values go up."
The index provides an early measure of sales activity because there is usually a one- to two-month lag between a sales contract and a completed deal.
The sales report was driven by a more than 12 percent drop in the Northeast and a 9.5 percent decline in the Midwest. Sales were down only 0.2 percent in the West and rose by nearly 4 percent in the South.
Though mortgage rates have been at or near the lowest level in decades, the economy remains weak. Plus, many buyers have been scared away by the prospect that home prices could start to turn downward again.
Because housing is such an important engine of the economy, lower prices could dim the recovery. When home values fall and people have less equity in their homes, they tend to cut back on spending.
Meanwhile, major homebuilder D.R. Horton Inc. said Tuesday it reversed a year-ago loss in its fiscal third quarter as homebuyers raced to close on purchases before the end of June to qualify for federal tax credits. But with the credits now expired, new sale orders dipped 3 percent from the same quarter a year earlier.
"Market conditions in the homebuilding industry have become more challenging after the expiration of the tax credit," Chairman Donald R. Horton said in a statement.