Dec. 31 (Bloomberg) -- Sales of existing homes in the U.S. unexpectedly rose in November, fueled by slumping house prices that signal no respite from the three-year housing recession.

``It's a pause in the downward trend in home sales, but I wouldn't rush to any conclusions and say the housing market is starting to stabilize,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. ``Housing will still be a negative for the economy for a while.''

Purchases rose 0.4 percent to an annual rate of 5 million, the National Association of Realtors said in Washington today. Transactions were down 20 percent from November 2006 and the median home price fell 3.3 percent.

The sales improvement may be short-lived as stricter lending rules threaten to further depress the industry. The steepest housing downturn in 16 years likely means economic growth next quarter will be less than 2 percent and the Federal Reserve will respond by cutting interest rates again, economists predict.

The dollar extended its gain against the euro after the report, while stocks remained lower. The Standard & Poor's Supercomposite Homebuilding Index, which includes KB Home, Pulte Homes Inc. and D.R. Horton Inc., rose 1.2 percent to 310.87 at 4:08 p.m. in New York.

Home resales were projected to stay at 4.97 million, unchanged from the prior month's initially reported figure, according to the median forecast of 58 economists surveyed by Bloomberg News. October's revised sales pace of 4.98 million was the lowest since records began in 1999.

``The trend is toward weaker sales in the next quarter,'' said Julia Coronado, senior economist at Barclays Capital Inc. in New York, who correctly anticipated the sales gain.

Prices Retreat

The median value dropped to $210,200 compared with $217,400 in November 2006. Home sales were down 31 percent from their July 2005 peak.

The number of homes for sale at the end of the month fell 3.6 percent to 4.27 million. At the current sales pace, that represented 10.3 months' supply, compared with 10.7 months in October.

``Inventory is still high and further reduction in prices may be required in some areas to induce buyers back into the market,'' Lawrence Yun, the real-estate agents group's chief economist said in a statement.

The inventory of single-family homes represented 9.9 months' supply, down from 10.4 the prior month. Still-high inventories, combined with the drop in sales of new homes, gives builders little reason to break ground on new projects.

Well Below Peak

Sales of new homes, which make up about 15 percent of the market, fell 9 percent in November to a 12-year low, the government said Dec. 28. Purchases were down 53 percent from their July 2005 peak. Existing homes make up the remainder of the market.

New-home sales are considered a leading indicator of the market because they are tabulated when a contract is signed. Sales of existing homes reflect contract closings which typically occur a month or two later.

Declines in home construction have detracted from growth for the last seven quarters and are likely to keep weighing on the expansion, according to Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York.

``The housing pain looks likely to continue through 2009,'' Harris wrote in a Dec. 20 note to clients. He predicted ``sales and starts to fall through the middle of 2008, gradually rising in 2009.''

Single-Family Dwellings

Resales of single-family homes rose 0.7 percent to an annual rate of 4.4 million. Sales of condos and co-ops fell 1.6 percent to a 600,000 rate, the lowest since November 2001.

The increase in purchases was led by a 10 percent rebound in the West. Sales declined 3.3 percent in the Northeast and 2 percent in the South. Sales were little changed in the Midwest.

Home prices in 20 metropolitan areas fell 6.1 percent in October from a year earlier, the biggest decline in at least six years, according to the S&P/Case-Shiller home price index issued last week.

Falling prices leave owners feeling poorer and less likely to borrow against home equity to finance purchases. Consumer spending, which accounts for more than two-thirds of the economy, may grow at a 1.5 percent pace in the fourth quarter, almost half the rate of the previous three months, economists surveyed by Bloomberg forecast.

Defaults on privately insured mortgages rose 35 percent in November to a record, an industry report today showed, adding to evidence the U.S. housing slump is deepening.

Late Payments

The number of insured borrowers falling more than 60 days late on payments jumped to 61,033 last month from 45,325 in November 2006, according to data from members of the Washington- based Mortgage Insurance Companies of America. The missed payments, often a prelude to foreclosure, represented a 2.9 percent increase from October.

The odds of a recession in the next 12 months rose to 39 percent in December from 33.6 percent the prior month, according to the median forecast of economists surveyed by Blue Chip Economic Indicators.

Sellers are cutting prices and builders are scaling back projects to trim a glut of inventories of unsold homes.

``Once we are through absorbing the excess inventory, the supply that's in the marketplace, we will go back to doing good business,'' Robert Toll, chief executive officer of Toll Brothers Inc., the largest luxury-home builder, said on a conference call earlier this month. ``This downturn may be our toughest yet,'' said Toll.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.netBob Willis in Washington at bwillis@bloomberg.net

Last Updated: December 31, 2007 16:14 EST