In October, buyers raced to get contracts signed in time to take advantage of a tax credit for first-time homeowners that was set to expire. It has since been extended into spring - and now prospective buyers are taking their time.
The National Association of Realtors said its seasonally adjusted index of sales contracts fell 16 percent from October to November, ending nine months of gains. Economists surveyed by Thomson Reuters had expected only a 2 percent drop.
"This was bound to happen at some point, although not by this much," wrote Jennifer Lee, senior economist with BMO Capital Markets. She added: "Gulp."
When the tax credit expires this spring and the government phases out programs to keep mortgage rates low, the housing market will have to stand on its own. Many economists doubt it can.
"We're just going to languish at the bottom," said Anna Piretti, senior economist at BNP Paribas.
The last housing downturn helped drag the nation into the worst recession in decades. The expected dip in home sales and prices this winter appears to pose less of a threat to the broader economy.
Orders to U.S. factories, for example, posted a big gain in November, the Commerce Department said Tuesday. So while the housing market remains vulnerable, makers of steel, computers and chemicals are mounting a surprisingly robust rebound.
"We expect housing to just limp along even as the rest of the economy is growing fairly strongly," said Nomura Securities economist Zach Pandl.
The stock market slid as the reports offered mixed signals about the economy. The Dow Jones industrial average finished down about 12 points.
The tax credit is worth up to $8,000 for first-time homebuyers and was set to expire Nov. 30. Congress extended it through the end of April and broadened it to include a credit of up to $6,500 for buyers who relocate.
Typically, there's a lag of one to two months between when the contract is signed and when the sale closes. To meet the original deadline for the tax credit, buyers would have needed to submit a signed sales contract by the end of October at the latest.
The Realtor group said it expected homebuyers to start responding to the extension by early spring, suggesting that sales will pick up again but fall back later in the year, once the government support is gone.
In addition, the Federal Reserve is buying up $1.25 trillion in mortgage-backed securities to help keep interest rates at or near record lows. That program is scheduled to run out at the end of March, though a sudden jump in rates could force the Fed to extend it.
"We don't want to see mortgage rates rise yet," said Jerry Smith, associate broker with Re/Max Professional outside Denver. "And we certainly don't want to see unemployment get any worse than it is."
For November, new sales contracts were down 3 percent in the West, 15 percent in the South and 26 percent each in the Northeast and Midwest.
The housing market had been rebounding from the worst downturn in decades, helped by the federal intervention. Sales of existing homes surged in November to the highest level in nearly three years, but analysts expect a drop of 10 to 20 percent from November to December.
The most pessimistic analyst forecast came from Daniel Alpert, managing director of the New York investment bank Westwood Capital LLC. He expects prices to fall to 10 percent below the lows of last spring when the government help goes away.
Nevertheless, in some particularly hard-hit areas real estate agents are confident the worst days of the housing bust are over.
Charlotte Wester, a real estate agent with US Preferred Realty in Mesa, Ariz., said homes are so affordable - one house in her area sold for under $50,000 last fall - that houses are drawing multiple bids and often selling over the listing prices.
"I can't see how our prices could get any cheaper," she said.
--- AP Economics Writer Martin Crutsinger contributed to this report.
