WASHINGTON (TheStreet) -- Sales of newly built homes dipped 0.7% in July to a seasonally adjusted annual rate of 298,000, the Commerce Department said early Tuesday, disappointing economists' expectations as the key figure fell for the third consecutive month to a five-month low.

The figure was expected to come in at a rate of 310,000, according to consensus estimates at Briefing.com, after a revised June rate of 312,000. June's new-home sales figure was originally reported at a rate of 310,000.

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Despite coming in worse than expected, July's new-home sales rate was 6.8% higher than year-earlier figures.

The median sale price of new homes sold last month was $222,000; the average sales price was $272,300. On a seasonally adjusted basis, there were 165,000 new homes for sale at the end of July, representing a 6.6-month supply at the current sales rate.

The housing market is still a ways off from any sense of real recovery as potential buyers remain cautious, home inventories remain high and building activity remains sluggish, according to an analyst with the Credit Union National Association.

>> No Housing Turnaround Anytime Soon: Analyst

"Unfortunately, none of the data we see suggest that there will be a significant turnaround anytime soon," Mike Schenk, vice president of economics and statistics with CUNA, told

TheStreet

recently. "While

mortgage interest rates are near all-time lows

and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected ... and permit activity suggest very little new construction on the horizon."

Data released earlier this month showed that

homebuilders began construction on 1.5% fewer homes in July while applications for building permits fell 3.2%

. The National Association of Home Builders (NAHB) reported that

homebuilder sentiment held steady at a low reading of 15 in August

as the usual suspects -- an oversupply of homes, inaccurate appraisal values and tight lending -- kept home purchasers at bay.

"Extreme and prolonged weakness in labor markets are the key underlying feature of housing market weakness" with the true unemployment rate -- including the underemployed and part-time workers looking for full-time work -- near 16%. The "glut of empty homes on the market" -- around 2 million -- plus what is known as the "shadow inventory," or homes kept off the market because owners don't think they will sell in the current environment, adds another 2 million to 2.5 million vacant homes, Schenk estimated.

Last Thursday, the National Association of Realtors reported that sales of previously occupied homes unexpectedly fell 3.5% in July as potential homebuyers cancelled more contracts.

"Affordability conditions this year have been the most favorable on record dating back to 1970, but many buyers are being held back because banks are offering financing to only the most highly qualified borrowers, ignoring a large share of otherwise creditworthy buyers," said NAR chief economist Lawrence Yun. "Those potential buyers represent the difference between an uneven recovery and a much more robust housing market that could stimulate additional economic activity and create jobs."

Stocks in the homebuilder sector were mixed Tuesday morning, including the

SPDR S&P Homebuilders

(XHB) - Get Report

and

iShares Dow Jones US Home Construction

(ITB) - Get Report

exchange-traded funds that tracks the sector. The ETFs remain around 70% and 80%, respectively, off their early 2006 peaks.

Among individual builders,

PulteGroup

(PHM) - Get Report

lost 1.3%,

Toll Brothers

(TOL) - Get Report

fell 0.2% and small-cap builder

KB Home

(KBH) - Get Report

shed 1.8%.

Lennar

(LEN) - Get Report

, largely considered a leader among the homebuilders, added 0.5%,

D.R. Horton

(DHI) - Get Report

rose 0.5% and

Hovnanian Enterprises

(HOV) - Get Report

shares were flat.

--

Written by Miriam Marcus Reimer in New York.

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Miriam Reimer

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