WASHINGTON (MarketWatch) -- Sales of U.S. existing homes plunged 16.7% in December to a seasonally adjusted annual rate of 5.45 million from 6.54 million in November as a popular tax credit was set to expire, a national real estate trade group estimated Monday.
The 16.7% percentage decline from November to December was the largest on record, dating back to 1968, the National Association of Realtors reported.
"The tax credit clearly pulled sales forward into the fall months, leading to part of the weakness seen in December," said Omair Sharif, an economist for RBS Securities.
The decline was larger than the 11% drop to 5.80 million that was expected by economists surveyed by MarketWatch. Read our complete economic calendar and consensus forecast.
Market reaction to the report was notable. Stock prices fell off the highs of the day, while Treasury bond prices rallied. See our snapshot of today's U.S. market action.
News Hub: Largest Real Estate Deal Goes Bust Tishman Speyer's deal for Stuyvesant Town and Peter Cooper Village, which was the biggest real estate deal at the time, may end up in bankruptcy, the News Hub panel reports.
Sales in December were up 15% compared with December 2008. Read the full report on the NAR website.
The median sales price rose to $178,300 in December, up 1.5% compared with a year earlier. It's the first year-over-year increase in prices since August 2007.
For all of 2009, sales rose 4.9% to 5.16 million compared with 2008. It was the first annual sales gain since 2005. The median price fell 12.5% in 2009.
"The market is going through a period of swings driven by the tax credit," said Lawrence Yun, chief economist for the real estate lobbying group. "We're likely to have another surge in the spring."
"Job creation is the key to a continued recovery in the second half of the year," Yun said, adding he believed there was some sustainable momentum in the market. December's sales pace was up 11% compared with June's.
Sales had surged about 40% from June to November in response to the federal tax credit for first-time buyers, which was set to expire on Nov. 30. As it happened, the tax credit was extended until June 2010 and expanded to cover repeat buyers.
But buyers didn't know the credit would be extended when they were shopping for homes in October. In order to close in December, they would have had to sign a sales contract by early November at the latest. Existing-home sales are recorded at the closing.
First-time buyers accounted for 43% of sales in December, down from 51% in November.
"The housing market continues to face significant headwinds, including high unemployment, record delinquencies and foreclosures, the specter of rising mortgage rates as the Fed's [mortgage-backed securities] purchase programs comes to a close in late March, and tight credit," said Sharif of RBS Securities. "Still, the resale market showed resilience in the second half of 2009, and the expansion and extension of the tax credit to April 30 could boost purchases during the spring selling season."
Inventories of unsold homes on the market dropped 6.6% to 3.29 million, the lowest since March 2006. The inventory figures are not seasonally adjusted. Inventories usually fall about 8% this time of year.
The inventory represented a 7.2-month supply at the current sales pace, up from 6.5 months in November.
Rex Nutting is Washington bureau chief of MarketWatch.
Sales of previously owned homes in the US fell at the fastest rate ever recorded last December, according to data from the National Association of Realtors (NAR).

According to the association, existing home sales fell 16.7% last month, to an annual rate of 5.45 million, the largest crash since 1968. The figure was less than the 5.90 million units, or an eleven percent drop, predicted by most analysts.

Sales of homes went up for the entire of 2009 to 5.156 million units, or 4.9% for the year, and prices dropped from 2008 by 12.4%.

NAR chief economist Lawrence Yun described the figures as being "probably the largest annual drop since the Great Depression". He said that "the market is going through a period of swings driven by the tax credit. We're likely to have another surge in the spring. Job creation is the key to a continued recovery in the second half of the year."

Pierre Ellis, a senior economist for Decision Economics in New York, commented on the figures, saying: "The drop in home sales is the payback for the acceleration of sales that occurred with the original first-time home buyers tax credit. ... There is an issue as to whether the decline represents a fundamental weakening."

"The housing market continues to face significant headwinds, including high unemployment, record delinquencies and foreclosures, the specter of rising mortgage rates as the Fed's mortgage-backed securities purchase programs comes to a close in late March, and tight credit," Omair Sharif, an economist for RBS Securities, noted.

"Still, the resale market showed resilience in the second half of 2009, and the expansion and extension of the tax credit to April 30 could boost purchases during the spring selling season," he said.

"We’ll see a pickup in existing home sales in the next couple of months as people take advantage of the tax-credit extension", economist Adam York of Wells Fargo Securities LLC in Charlotte, North Carolina claimed. He fore-casted a pace of 5.4 million. He said that there were unlikely to be buyers of homes, despite the fact that the U.S. was "past the bottom."

All four regions of the country saw a decline in sales. In the Northeast, sales fell 19.5 percent, in the Midwest, they plunged 25.8 percent. The South, the country's largest region, saw a 16.3% decline, while in the West, sales waned by 4.8%.

US stocks fell slightly after the announcement, but went back up later in the day.