"The lower sales show a housing sector in pronounced recession, there's no other way to put it," Langan said. "Sales are down because prices are falling and people sense they will fall further. Obviously, few people in their right mind are going to buy a house when they sense that prices may be 5% or 10% lower or even lower in the months ahead. Based on the December data, it looks like we're going to continue to see housing sales weakness through 2008 and into 2009."

Purchases decreased 3.1% in the West, 3% in the South and 1.7% in the Northeast. One bright region: they rose 3.4% in the Midwest, the NAR said.

Langan added that a sluggish U.S. job market is also weighing on potential home buyer decisions. Historically, prospective U.S. home buyers have tended to postpone home purchases during periods of rising unemployment and/or slowing economic activity.

Above-norm inventories

Further, both the new and existing home markets had a 9.6 months supply on the market in December 2007 - - well above normal housing inventory levels. The NAR said inventories will have to fall to a 5-6 month supply to create balanced market conditions, which suggests that prices must fall further in many U.S. metro/suburban areas of the country to work-off excess inventory.

The NAR expects existing-home sales to run at an annualized pace of 4.9 million in the first half of 2008, rising to 5.8 million in the second half, and totaling 5.60 million for all of 2009. The aggregate existing-home price should decline 1.2% in 2008 to a median of $216,300, and then rise 3.2% to $223,200 in 2009.

However, Langan cautioned investors, and homebuyers, regarding the NAR's home sales and price projections, noting that the NAR also projects U.S. GDP growth of 2.2% in 2008 and 2.7% in 2009. Langan says its "unlikely the U.S. economy will grow at/above 2.2% in 2008."

"Given current economic activity, credit availability and financial sector concerns, a GDP growth rate of 2.2% or better in 2008 would be an achievement," Langan said. "We're much more likely to grow about 1.0-1.5% in 2008. Given that, I would push back the NAR's timetable for housing price recovery about 6 months, perhaps as long as 9 months. We'll need another year to work-off inventories, and meaningful price recovery may not occur until mid-2009, or even later."