WASHINGTON - Four steps forward, one step back.
Home resales dipped unexpectedly last month, falling 2.7 percent from a month earlier, the National Association of Realtors said Thursday, reversing steady monthly gains since April. Most economists, however, called the drop temporary and said they expected sales to strengthen later this fall.
"It doesn't change the underlying trend of improvement," said Dean Maki, chief U.S. economist at Barclays Capital.
But even if sales do turn upward again, Maki and other economists don't predict prices will follow. Though prices have stabilized this summer, many economists are forecasting a downward turn over the fall and winter and expect prices to finally hit bottom early next year.
Compared with a year ago, home sales are up 3.4 percent, and the inventory of unsold homes has been whittled down to an 8.5 month supply at the current sales pace. That's the lowest level in more than two years.
Fewer foreclosures have been coming on to the market in Phoenix, for example, cutting down the number of homes for sale from around 54,000 last year to about 31,000 today, said Floyd Scott, broker-owner of Century 21 Arizona-Foothills.
Sales this month should be ahead of August, Scott says. But he wonders whether they will drop after the Nov. 30 sunset of a tax credit of up to $8,000 for first-time homebuyers.
"It will be interesting to see what happens sometime around the first or second week of October," he said.
In Washington, real estate agents and home builders are lobbying hard for an extension of the credit. Without it, they argue, the housing market will take a sharp turn for the worse.
First-time buyers purchased almost one in three homes in August. Together with investors snapping up foreclosures, they have provided most of the momentum in the market this year.
"Prices have just gotten so low in some places that investors can't resist," said Dave Denslow, an economics professor at the University of Florida.
After a long period in which it was clear that housing was headed in one direction - down - some still doubt the market is truly in recovery mode. Optimists say the bottom was reached earlier this year, but pessimists say there are simply too many foreclosed properties that have yet to be dumped on the market.
Nearly 7 million homes are destined for foreclosure, making up a huge "shadow inventory" of homes that haven't gone on the market, according to a report by Laurie Goodman, an analyst with Amherst Securities Group.
"That housing overhang is the single largest impediment to a recovery in the housing market," Goodman wrote this week.
Nationwide, sales fell to a seasonally adjusted annual rate of 5.1 million in August, from a pace of 5.24 million. That surprised analysts, who had expected sales to rise to an annual pace of 5.35 million, according to Thomson Reuters.
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 return to normal, said Lawrence Yun, the Realtors' chief economist, 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."
Nationally, the median sales price was $177,700, down 12.5 percent from the same month last year. Prices were also down 2 percent from a month earlier.
The drop in sales last month may reflect delays in completing sales due to tough lending standards and new rules for appraisals. Real estate agents say new rules, effective May 1, that were designed to limit conflicts of interest in the appraisal process are delaying or undermining sales because appraisals are coming in too low.
That's what happened to Maria Jose Garcia, who just bought a three-bedroom house with a garden in a quiet neighborhood in West Park, a suburb of Fort Lauderdale, Fla.
Garcia signed a contract to buy her first home in early July but closing was pushed back twice because two appraisals came in below the contract price. After negotiating with the seller, the price came down from $125,000 to $105,000.
"The whole time, I was worried, but those issues did not depend on me," said Garcia, 43, an office assistant at a rehabilitation center. "I was sure I was going to buy a house. It was just a matter of negotiating and keeping a good disposition."
Low mortgage rates are also helping more people afford a home. Freddie Mac said Thursday that the average rate on a 30-year fixed-rate loan was 5.04 percent this week, unchanged from a week earlier.
Foreclosures and other financially distressed sellers accounted for about 30 percent of the market last month. That's especially true in the West, where 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.
But the number of newly laid-off workers seeking unemployment benefits fell for the third straight week. The Labor Department's report Thursday was evidence that layoffs are continuing to ease in the earliest stages of an economic recovery.
Regionally, home sales were strongest in the West, up nearly 3 percent compared with year-ago levels. In the Midwest, they fell by nearly 7 percent, and by 3 percent in the South and by 2 percent in the Northeast.
Another reading on the state of the housing market will come Friday morning, when the government reports on new home sales for August. Sales are expected to rise 1.6 percent to an annual rate of 440,000, according to Thomson Reuters.
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AP Real Estate Writers Adrian Sainz and Alex Veiga contributed to this report from Miami and Los Angeles. AP Economics Writer Christopher S. Rugaber contributed reporting from Washington.