Home sales dropped to a two-year low in July, putting housing at the epicenter of the emerging growth slowdown, economists project a pair of reports to show this week.

Sales of new and previously owned homes probably fell 1.2% during the month to an annual rate of 7.66 million, the fewest since February 2004. Orders to factories for durable goods, such as furniture and autos, also dropped.

Rising mortgage rates and still-high prices have made buying a home the least affordable in almost two decades. Fewer sales and less construction may make it possible for Federal Reserve officials to keep holding interest rates steady after ending a two-year run of rate increases earlier this month.

Housing “is in full-fledged retreat, threatening the broader economy,” the deputy chief economist at BMO Nesbitt Burns, Douglas Porter, said in Toronto. “The weakness we are seeing in housing is one of the principle factors why the Fed paused and is one reason why they are likely to remain on hold.”

Sales of new homes fell to an annual rate of 1.1 million in July from 1.131 million a month earlier, economists expect a Commerce Department report to show on Thursday.

Purchases of existing homes, to be reported by the National Association of Realtors on Wednesday, likely dropped to a 6.55 million pace from 6.62 million in June. Previously owned homes account for about 85% of the market and new houses the rest.

“The housing downturn and the cumulative effect of energy- and electricityprice increases and higher interest rates, among other factors, are definitely having an impact on the consumer,”the president of the Federal Reserve Bank of Dallas, Richard Fisher, said in an August 16 speech. “We are watching the effect of the inventory correction in housing with due regard for its gravity,” Fisher said.

The inventory of unsold existing homes in June was the highest since 1997.The number of unsold new homes rose to a record 566,000.

Home construction is slowing along with sales. Builders broke ground in July on the fewest homes in almost two years, the Commerce Department reported last week.

The average rate on a 30-year fixed mortgage reached 6.8% in the week ended July 21, the highest since May 2002 and more than a percentage point above the rate a year earlier, according to McLean, Va.-based Freddie Mac, the second-biggest purchaser of American mortgages.