Existing homes had a weak month in July, and the outlook for August isn't much brighter.

Sales of existing homes dropped 3.5% last month to a seasonally adjusted annual rate of 4.67 million, the lowest rate in eight months, according to data released today by the National Association of Realtors (NAR).

The drop came from the single-family sector, which was down 4.4% for the month, while condo and co-op sales remained flat.

NAR pointed to low-ball appraisals and cancellations (largely due, it said, to low appraisals) as the trouble-makers. According to a press release discussing the numbers, 16% of NAR members reported contract failures in July, and 9% reported a contract delay in the past three months due to low appraisals. An additional 13% reported that a contract was renegotiated to a lower price after an appraisal came in below an agreed-upon price.

But according to Patrick Newport, U.S. economist at IHS Global Insight, the real problem is simply weak demand. "Buyers are worried about falling house prices, the job outlook, the stock market, and gridlock in Washington, D.C.," Newport wrote in a release discussing the numbers. "Tight credit is playing a role, of course. But one reason credit is tight is that demand is weak."

That weak demand has led to falling prices, which has forced lenders to tighten credit, Newport says, as "the collateral is losing value off the bat." In response, buyers are waiting on the sidelines.

Newport backed up his point with data from the Mortgage Bankers Association’s (MBA) Purchase Index, which shows mortgage applications in a steady decline since March. From the MBA's vantage point, the near future doesn’t look particularly bright either, as its index has pointed downward lately, despite record-low mortgage rates.

Last week, "purchase application activity fell sharply," said Mike Fratantoni, vice president of research and economics at the MBA, "likely the result of potential home buyers hesitant to purchase in this highly volatile and uncertain environment."

Both the median and average home prices dropped on an annual basis, falling 4.5% and 3.2%, respectively.

While total housing inventory fell for the month, down 1.7% to 3.65 million existing homes for sale, the slowed sales pace pushed the month’s supply up to 9.4-month supply, from a 9.2-month supply in June.

Regionally, sales improved in the Northeast and Midwest, but gains were muted by declines in the South and West.

First-time buyers represented 32% of purchases for the month, up 1% from the previous month. And investors dropped 1% to come in at 18% of purchases. Cash transactions were flat at 29%.

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: Greenville, SC.