Published: Thursday, 24 Sep 2009 | 10:58 AM ET

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Existing-home sales dipped unexpectedly last month after a four-month streak of gains, providing evidence that the housing market recovery remains fragile.

AP

The National Association of Realtors said Thursday that sales dropped 2.7 percent to a seasonally adjusted annual rate of 5.1 million in August, from a pace of 5.24 million in July.

Sales, which were still up 3.4 percent from a year earlier, had been expected to rise to an annual pace of 5.35 million, according to economists surveyed by Thomson Reuters.

"We suspect it is just a temporary blip in the improving trend rather than a sign of renewed weakness," wrote Paul Dales, U.S. economist at Capital Economics.

First-time buyers purchased almost one in three homes last month. New homeowners will get an $8,000 tax credit if they complete the transaction by Nov. 30, which the credit expires.

"There is strength in the market and we will see stronger sales through November," said Patrick Newport, an economist at IHS Global Insight.

Lawrence Yun, the Realtor's chief economist, said the drop may reflect delays in completing sales due to tough lending standards and new rules for appraisals.

Nationwide sales are up nearly 14 percent from their bottom in January, but are still down nearly 30 percent from their peak nearly four years ago. For the housing market to stabilize, Yun said, sales would need to rise to a pace of around 5.5 million to 6 million per year.

If buyers see clear evidence of stable prices, the housing market recovery can be self-sustaining, Yun said, adding, "We are not there yet."

The median sales price was $177,700, down 12.5 percent from $203,200 in the same month last year.

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Foreclosures and other financially distressed sellers accounted for about 30 percent of the market. In the West, sales of homes under $100,000 were up 150 percent from a year ago. Sales of homes priced at over $250,000 were down nationally, with the biggest drop of nearly 40 percent coming among homes priced over $2 million.

With unemployment and foreclosures rising in the upper end of the housing market, "there will be plenty of more pain for higher-priced properties," wrote Joshua Shapiro, chief U.S. economist with MFR Inc.

In one positive sign, the inventory of unsold homes on the market fell to 3.6 million, from 4 million in July. That's an 8.5 month supply at the current sales pace, and the lowest level in more than two years.

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