Sales fell nearly 1 percent in July to a seasonally adjusted annual rate of 298,000, the Commerce Department said Tuesday. That's less than half the 700,000 that economists say represent a healthy market.
Last year, 323,000 homes were sold - the worst year on records that go back to 1963.
While new homes represent less than one-fifth of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs and $90,000 in taxes, according to the National Association of Home Builders.
High unemployment, larger required down payments and tougher lending standards are preventing many people from buying homes.
Plunging stocks and a growing fear that the U.S. could tip back into another recession are also keeping people from entering the troubled housing market.
Renewed concerns about job security likely weighed on many would-be buyers' minds, said Mark Vitner, senior economist at Wells Fargo.
A slowdown in the U.S. economy has more than offset any boost from super-low mortgage rates, said Paul Dales, senior U.S. economist at Capital Economics.
"A new home is a luxury that many Americans can no longer afford," Dales said.
All home sales remain weak. The sales pace for previously occupied homes is trailing last year's 4.91 million sales, the fewest since 1997. In a healthy economy, people buy roughly 6 million existing homes annually.
A report last week showed that more home sales than usual fell apart at the last minute, a sign that many buyers may be nervous about the economy. At least 16 percent of deals were canceled head of closings last month - four times the rate in May.
The troubled housing industry is hurting the broader economy. After previous modern-day recessions, housing contributed up to 20 percent to U.S. economic growth. That has fallen to 4 percent following the Great Recession.
Sales rose in July for new homes valued at less than $150,000. They also increased for those going for more than $750,000. But mid-priced home sales fell.
Outside of luxury markets, builders are struggling to compete with foreclosures and short sales, which have forced down prices. A short sale is when a lender accepts less than what is owed on the mortgage.
Those homes are selling at an average discount of 20 percent, and they lower neighboring values. That's made many re-sales a bargain compared with new homes, creating an average 30 percent disparity in prices.
Sales of new homes doubled in the Northeast in July, but the region has the weakest sales in the country by far. In the South and West, sales fell 7.4 and 5.9 percent, respectively. Sales rose 2.4 percent in the Midwest.
The median price of a new home fell more than 6 percent to $222,000 nationally. But it is still roughly 27.5 percent higher than the median price of a re-sold home, which was $174,000 in July.
The number of new homes for sale at the end of the month dropped to a record low of 165,000, down 0.6 percent from June. At the July sales pace, it would take 6.6 months to exhaust the current supply. Economists consider a 6-month supply a normal level, indicating that builders are heavily cutting back construction.
Sales of new homes have fallen 18 percent in the two years since the Great Recession officially ended.
A telling sign of how bad things have gotten for the housing industry: Prices have dropped more since the recession started, on a percentage basis, than during the Great Depression of the 1930s.
And it took 19 years for prices to fully recover after the Depression.