Battered by bad economic news, potential homebuyers in the South Bay stayed on the sidelines last month, sending sales to their lowest level for a July in more than two decades, according to a report Tuesday.

Real estate information service DataQuick said it has seen no lower July sales numbers for existing single-family houses in Santa Clara and San Mateo counties since it started keeping records in 1988, although the San Mateo sales numbers for last month are short a few days and are an estimate at this point.

The previous worst July was in 2008 in Santa Clara County and last year in San Mateo County.

The median price paid for an existing single-family home in Santa Clara County also sagged from June, dropping 5.5 percent to $565,000. San Mateo County's median price dropped 1 percent to $647,000.

The drop in sales came as no surprise to real estate professionals, who in recent weeks have seen buyers pull back and sellers take homes off the market if they can't get the price they want.

"With big purchases, bad economic news does tend to make people think twice," said Steve Blanton, executive officer of the San Mateo County Association of Realtors.

Interest rates are low and prices are reasonable, but agents say it's still not easy for many potential buyers to get a loan.

Sales of existing single-family houses in Santa Clara County dropped 16 percent from June to July and were 6 percent lower than a year ago. San Mateo County saw a 14 percent drop in sales from June, but sales were almost unchanged from a year earlier.

Condominium sales were much stronger -- up 15 percent over the year in Santa Clara County and up 4.6 percent in San Mateo County.

July is usually a slow month for single-family homes, but sales typically drop only 7 percent in both counties, DataQuick said.

"Everybody's kind of sitting on the fence," said Mobani Taba, broker-owner of Lincoln Intero Real Estate in San Jose's Willow Glen. "With all the talk of double-dip recession and the stock market, people who were going to put offers are holding back to wait and see."

But despite the recent dips in sales and prices, this year overall has been strong, said Michael A. Sibilia, president of the Santa Clara County Association of Realtors.

"One month does not make a trend," Sibilia said. "I'd be speculating, but maybe all the stuff that happened in Washington regarding the debt ceiling cooled people off. If this happened over four or five months, that would be a trend. One month -- I am not concerned."

Geraldine Padua of Sanctified Real Estate in San Jose said that the first two weeks of August have seen things pick up for her again after a slow couple of months. "It's like something got revived out there," she said.

Keeping the market going were first-time homebuyers, foreclosure sales, sales to investors and short sales, in which a home is sold for less than is owed on it, according to DataQuick. Foreclosures and short sales accounted for nearly 35 percent of the market in Santa Clara County and 30 percent in San Mateo County.

Richard Calhoun of Creekside Realty in Willow Glen said he's seeing a drop in the number of sales closing.

"I think the roller coaster on the stock market has given some buyers pause about making a 30-year commitment," he said.

Sales of homes of all types followed a similar declining trend throughout the Bay Area, DataQuick reported.

"We're still looking at a dysfunctional market," said DataQuick President John Walsh. The mix of homes sold at different price ranges is "lopsided, bottom-feeding is still prevalent and the lending market is just plain weird," he said.

The median price for all types of Bay Area homes sold in July was down 1 percent to $374,000 from June, and down 7 percent from $402,000 a year ago, reflecting the concentration of action in lower-priced homes, where bargain hunters and investors -- first-time homebuyers and absentee buyers -- accounted for almost half the sales.

Contact Pete Carey at 408-920-5419.