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After gaining in May, existing-home sales declined in June with many potential buyers on the sidelines, according to the National Association of Realtors.

"The recent collapse in the stock prices of Fannie Mae and Freddie Mac is just one in a series of blows to the stability of U.S. financial markets. The threat created by the failure of these two institutions, however, could be even greater than that posed by the collapse of Bear Stearns earlier in the year," says Adolfo Laurenti, senior economist of Mesirow Financial.

Mortgage rates soared, with the average conforming 30-year fixed mortgage rate jumping to 6.77 percent. According to Bankrate.com's weekly national survey of large lenders, the average 30-year fixed mortgage has an average of 0.45 discount and origination points.