April 23 (Bloomberg) -- Sales of U.S. previously owned homes fell in March after jumping a month earlier by the most in more than five years, indicating the market will remain depressed for much of the year.

Purchases decreased 3 percent to an annual rate of 4.57 million, lower than forecast, from 4.71 million in February, the National Association of Realtors said today in Washington. The median price slumped 12 percent from a year ago and distressed properties accounted for about 50 percent of all sales.

Record-low mortgage rates and a foreclosure-driven plunge in prices are making houses more affordable, helping the market stabilize following the biggest slump since the Great Depression. Even so, mounting job losses dim prospects for an immediate recovery.

“This fits with an idea of stabilization of housing demand,” said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. “We’ve seen housing affordability go up across the country. The bad news has been diminishing.”

Shares of the largest homebuilders were down following the report, while stocks overall were little changed. The Standard & Poor’s builder supercomposite fell 1.3 percent to 235.26 at 10:13 a.m. in New York. The S&P 500 index was down 0.3 percent at 841.17.

More Claims

Another report showed the number of Americans filing first- time claims for unemployment insurance rose by 27,000 last week to 640,000 as forecast, while total benefit rolls reached a record, indicating the labor market continues to deteriorate.

Economists forecast resales would fall to a 4.65 million annual rate, according to the median of 69 projections in a Bloomberg News survey. Estimates ranged from rates of 4.37 million to 4.9 million.

Last month’s sales pace was still higher than the decade- low 4.49 million reached in January.

Purchases were down 7.1 percent compared with a year earlier.

The number of houses on the market dropped 1.6 percent to 3.74 million. At the current sales pace. it would take 9.8 months to sell those homes, up from 9.7 months in February. The agents’ group has said a five to 6 months’ supply is consistent with a stable market.

The median price of an existing home decreased to $175,200 in March from $200,100 a year earlier.

Condos Slump

Resales of single-family homes decreased 2.8 percent to an annual rate of 4.1 million. Sales of condos and co-ops dropped 4.1 percent to an 470,000 rate.

The decrease in total sales last month was led by an 8 percent slump in the Northeast. Purchases also fell in the West and in the South and were unchanged in the Midwest.

A weak job market is one reason economists project foreclosures will keep rising as unemployed owners fall behind on mortgage payments. A total of 803,489 properties received a default or auction notice or were seized in the first quarter, the highest since records began four years ago, said RealtyTrac Inc., an Irvine, California-based seller of mortgage data.

The surge in foreclosures is causing prices to drop, making homes more affordable, particularly for first-time buyers, the real-estate agents’ group said. Distressed properties accounted for about 50 percent of all home resales in February, the group said, up from about 45 percent in previous months. First-time buyers accounted for about 51 percent of sales last month, the NAR said.

Lower Rates

Government efforts to lower borrowing costs and unclog lending may be starting to pay off. The average rate on a 30- year fixed mortgage fell below 5 percent for the second time on record in the week ended March 19 and has held below that since, according to Freddie Mac. It reached a record-low 4.78 percent in the week ended April 2.

The NAR’s affordability index, which tracks mortgage rates, home prices and incomes, surged in February to the highest level in 20 years of data.

Federal Reserve Chairman Ben S. Bernanke said last week that “we have seen tentative signs that the sharp decline in economic activity may be slowing,” citing housing and retail sales. “A leveling out of economic activity is the first step toward recovery.” Central bankers are due to meet again next week.

The gain in distressed properties may be hurting sales of new homes.

Lennar Corp., on March 31, reported a wider first-quarter loss and said orders fell 28 percent. The company also said orders tumbled in January and February.

“The housing market continued its downward trend throughout our first quarter,” Lennar Chief Executive Officer Stuart Miller said in a statement. “Despite historically low interest rates and some indicators pointing toward market stabilization, low consumer confidence, increased unemployment and growing foreclosure rates negatively impacted new home sales in most of our markets.”

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Last Updated: April 23, 2009 10:19 EDT