"Lack of inventory continues to be the overwhelming factor holding back home sales," the National Association of Realtors says.
The government shutdown, now in its 28th day, is creating a backlog of loan approvals.
July was the fourth straight month of declines for home sales, the longest such stretch since 2013.
There are now more homes under contract than at any time since February 2006, says the NAR.
'Finding the right property at an affordable price is burdening many potential buyers,' the National Association of Realtors says.
But total housing inventory at the end of last month was 4.5% lower than one year ago, according to the NAR.
The dip in existing-home sales after three straight months of gains reflects inventory levels that were 1.7% lower than a year ago.
'The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices ... is encouraging more households to buy.'
Existing home sales in June rose 3.2%, to 5.49 million, from a downwardly revised 5.32 million in May.
