Home sales in August increased 7.6% after plummeting in July, but activity is still low and could fall even further, taking prices with it. Most blame the expiration of the homebuyer tax credit for pulling sales that otherwise would have occurred through the end of 2010 forward, but Sam Khater, senior economist at the analytics firm CoreLogic, told HousingWire even more obstacles could keep buyers out of the market. “The home sales market remains very weak coming into October," Khater said. "In the short term, this reflects the homebuyer tax credit which shifted demand forward and whose impact will be felt for a few more months. Over the longer-term, negative equity and high unemployment serve as the main obstacles to a more resilient home sales market." Paul Dales, an economist at Capital Economics, said even after the uptick in August sales, they are still at the second-lowest level seen in 14 years. "Looking ahead, as the distortion from the tax credit continues to fade, home sales will rise further," Dales said. "But when unemployment is so high, negative equity so widespread and the threat of further price falls becoming a reality, demand for housing will remain relatively weak." David Stevens, commissioner for the Federal Housing Agency, in testimony before Congress today said between 20% and 25% of homeowners in the U.S. are underwater. This negative equity, Khater said, is keeping potential sellers on the sideline while high unemployment keeps buyers at bay even though mortgage rates are at an all-time low. "Other factors holding back the home sale market include tighter underwriting and impaired consumer balance sheets," Khater said. Quinn Eddins, director of research at Radar Logic, said today that home prices would follow depleted demand to a new bottom either by the end of 2010 or the start of 2011. He doesn’t make too much of the "rebound" in home sales reported earlier today. "This shows weak demand, which is as much a result of the slow economic recovery and jobs recovery as it is from the pull-through of the tax credit. It pulled housing transactions that would have happened in later in the year," Eddins said. "Despite the uptick, we're still pretty bearish on overlying housing demand, and we think that's going to bring prices down over the next few months." Eddins said there are two paths the market can take moving forward. Each depends on how the government-sponsored enterprises Fannie Mae and Freddie Mac, and other financial institutions will manage the flow of REO properties onto the market. If these firms flood the market, prices could drop 10% to 15% below the trough seen in 2009, dragging not only house prices but the entire economy back into a recession. If these companies continue to manage REO to a trickle, Eddins expects flattened prices for years to come. "Either way," Eddins said, "this will take years." Write to Jon Prior.