Existing home sales plummeted in July and most economists can’t say they didn’t see it coming. With the winding down of the homebuyer tax incentive, they predicted it was only natural. What they are saying, however, is they didn’t anticipate how drastic the drop would be and now things are bound to get worse. Predictions that home prices may drop into double digits continue to drag down sales. Bill Gross, managing director of the world’s biggest bond fund, PIMCO remarked that the idea of a rebound anytime soon is “ludicrous.” In a meeting at the US Treasury last week, Gross called for combining the government-sponsored entities into one entity that insures the majority of current and future originations. The 27.2% drop in existing home sales brought sales down to 3.83m for the month of July, 34% below April’s tax credit-induced peak, according to Paul Dales, economist at Capital Economics. That’s consistent with a level last seen in 1993 and is well below the low for the previous cycle of 4.53m (Nov. 2008). Dales said in his commentary that it would now take over a year to clear all the homes on the market. The time frame announced in June based on sales for that month was 8.9 months. The historic pattern consistent with stable prices is 7 months to clear all homes on the market. “In short, home sales were eye-watering weak in July and suggest that the double-dip in house prices that we warned about at the start of the year is just around the corner,” said Dales. Although home sales are, in part, artificially depressed by the tax credit, financial and real estate economist for Johnson Souza Group, Inc., Larry Souza said that the world as a whole has witnessed market activity that is influencing consumers to air on the side of caution. “We were hoping by this time, moving into the second half of the year, that the unemployment rate and GDP numbers would be back at historically consistent growth numbers and that they are not really spooked people,” Souza told HousingWire in an interview. “But it was really the 100-point drop in the Dow in May and the sovereign debt debt crisis between Germany and Greece that caused a global scare.” He said that underlining weakness in fundamentals coupled with the expiration of housing incentives created a consumer pull back and, ultimately, economic slow-down. Souza predicts that the end of home shopping season — short-lived because of the huge influx of buyers in the spring — will drive market rates and asking prices even further down to attempt to increase demand. He even suggested that the federal government may need to provide more homebuying incentives. In a research note today PIMCO’s Gross said this would mean bad news for the private sector of lending and origination. “Americans now know that housing prices don’t always go up, and that they in fact go down by 30%-50% in a few short years,” Gross said in his investment outlook. “Because of this experience, private mortgage lenders will demand extraordinary down payments, impeccable credit histories, and significantly higher yields than what markets grew used to over the past several decades. “Could an unbiased observer truly believe that housing starts of 2m or even 1m per year could be generated under the wing of the private market? In front of Treasury Secretary Geithner and the assembled audience I said that was impractical. “Let me amend that to ‘ludicrous.'” Write to Christine Ricciardi.