The National Association of Realtors' seasonally adjusted index of pending sales for existing homes fell to 84.6 from January's upwardly revised reading of 86.2. The index stood at 107.6 in February 2007.
Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.3.
A reading of 100 is equal to the average level of sales activity in 2001, when the index started. The previous low was August's reading of 85.8, recorded at the height of the credit crunch.
With house prices falling and credit continuing to tighten, many economists say the housing market is likely to worsen in the coming months, though some remain hopeful about a recovery in the second half of the year.
"The question was whether things were starting to stabilize," said Global Insight economist Patrick Newport. "Apparently they're not."
Newport predicts home sales will fall by another 5 to 10 percent before picking up at the end of the year, while the Realtors group forecasts sales will remain flat in the first half of the year before rebounding strongly in the second half.
The Realtors report gives an early indication of how existing home sales are likely to fare for March, because of the typical lag of a month or two between when a buyer signs a home sales contract and the closing of the deal.
Lawrence Yun, the Realtors' chief economist, said in a statement that the decline in pending home sales "implies we're not out of the woods yet, though an era of successive deep sales declines appears to be over."
The Realtors group maintained its prediction that the housing market would pick up in the second half of the year, forecasting improved availability of loans for more expensive houses.
Sales of existing homes posted an unexpected increase in February, rising by 2.9 percent after six months of declines.
Some say lower home prices are providing incentive for bottom-fishers to look for cheap deals, however it remains unclear how much of a boost that will provide.
"We'll have to see if these pending transactions can actually close," Mike Larson, a real estate analyst with Jupiter, Fla.-based Weiss Research said in an e-mail. "My concern is that stingier lending standards are leading to more deals falling apart."