The National Association of Realtors said sales of existing homes fell 2.7% in August, pushing the annual rate to 5.10 million units from 5.24 million in July. 

Compared to 12 months ago that pace is up 3.4%, but analysts were expecting a 2.1% boost this month due to low mortgage rates and the soon-expiring tax credit for first-time homeowners.

The monthly slide in the index, which tracks sales of single-family homes, town homes, condominiums and co-ops, follows four months of gains that saw a cumulative 15.2% gain in sales.

Single-family home sales fell 2.8%, the first monthly decrease since March, while condominium and co-op sales slipped 1.6%.

Jennifer Lee, economist at BMO, called the numbers “disappointing” but added that the broad story of improvement hasn’t changed. “Given the six-month streak of increases in pending home sales, look for some retracement in the September data,” she predicted.

Regionally, sales fell in all four areas. Sales in the Northeast declined 2.2%, while those in the Midwest fell 6.6%. In the South, existing home sales were down 3.1%, and in the West sales declined 2.7%.

“Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus,” said Lawrence Yun, chief economist at the NAR. Despite the monthly slide, Yun said the tax credit was “having the intended impact.” 

Indeed, 30% of all sales were from first-time homebuyers. Foreclosure-related sales also accounted for nearly a third of sales.

“The decline demonstrates we can’t take a housing rebound for granted,” Yun added. He attributed the monthly decrease to “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.” 

If there was good news in the report, it was that inventories were slashed by 10.8% to 3.62 million, marking the biggest cutback in 10 months. At the current sales pace there are now 8.5-months of supply on the market, which is the lowest level of overhang since April 2007, and not far above the healthy ratio of 6 months.

Prices too have been stabilizing. Still, homebuyers continue to benefit from a deflated market as the median price for all housing has fallen 12.5% since August 2008. It’s unlikely prices will go up any time soon, especially as the foreclosure crisis continues (yesterday, the Wall Street Journal reported there were at least 1.2 million loans 90 days delinquent, none of which had entered the foreclosure process.)