Real Estate Troubles Build

"There's no reason we can't go back to the pre-boom levels (of 2003)," when annual sales totaled less than 6 million, Neuhart says.

From June to July, sales declined across the country. Sales fell 6.4% in the West, 5.9% in the Midwest, 5.4% in the Northeast and 1.2% in the South.

The sales numbers are a lagging indicator of the housing market since the data is based on home closings, which trail contracts by about two months.

Still, the high inventory of homes for sale spells trouble for homebuilders, who continue to report declining orders. On Tuesday, Toll Brothers(TOL Quote) provided optimistic order projections for next year, which assumes that trends will eventually improve.

Builder stocks were lower Wednesday, with Centex(CTX Quote) dropping 3.1%, Toll falling 2.9% and Lennar (LEN Quote) shedding 2.4%.

KB Home(KBH Quote) was down more than 5% after The Wall Street Journal reported that the company is looking into its stock option grants to CEO Bruce Karatz.