The National Association of Realtors said Wednesday that sales of existing homes fell 5.3 percent to an annual rate of 4.49 million last month, from 4.74 million in December. It was the weakest showing since July 1997.
Sales had been expected to rise to an annual pace of 4.79 million homes, according to Thomson Reuters.
The median sales price plunged to $170,300, down 14.8 percent from $199,800 a year earlier. That was the lowest price since March 2003 and the second-largest drop on record.
Foreclosures have swamped the market - especially in particularly distressed states like California, Florida, Nevada and Arizona. The Realtors group estimates that about 45 percent of sales nationwide are foreclosures or other distressed property sales.
That's great news for buyers, who are paying the most affordable prices in years. Another boost: the combination of low interest rates and the $8,000 first-time homebuyer tax credit tucked in the economic stimulus plan signed by President Barack Obama this month.
The tax credit should help boost home sales by late spring or early summer, said Lawrence Yun, chief economist for the Realtors group.
Buyers "did not want to jump into the market until they were certain" what the government would do to resuscitate the housing market, and that clearly dampened January sales, Yun said.
The number of unsold homes on the market last month fell almost 3 percent to 3.6 million, the lowest inventory level in two years. But due to the slumping sales pace, it would still take 9.6 months to rid the market of all of those properties, up from 9.4 months in December.