May 15 (Bloomberg) -- U.S. home prices tumbled to a two-year low in the first quarter, with declines in almost half of U.S. cities, the National Association of Realtors said.

The median price for houses and condominiums slid 1.8 percent to $212,300 in the first three months of this year, the lowest since the first quarter of 2005 when it was $199,700, the Chicago- based real estate trade group said. The median price for a single- family home fell in 62 of 145 metropolitan areas.

Tumbling prices sparked an increase in sales as bargain shoppers snapped up the cheaper properties. Seasonally adjusted, home sales rose 2.4 percent to an annualized 6.41 million from 6.26 million in the fourth quarter, the association said. Compared with a year earlier, the number of sales fell 6.6 percent.

``The market is clearing itself as the lower prices lead to less supply,'' said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. ``Over time that will help to bring supply and demand into equilibrium.''

The first quarter's sales will probably be the highest of the year, the realtors said. Purchases of previously owned homes likely will fall 3.5 percent in the second quarter to an annualized pace of 6.19 million, increasing to 6.34 million by the end of 2007, the group said in a May 8 forecast.

Median prices probably will slide in the second and third quarters and be flat in the final three months of the year, the realtors said. Prices will begin to rise in 2008, though at less than a percentage point every quarter, the group forecast.

Slump Persists

Declining prices, coupled with reports today showing foreclosures are continuing to rise and confidence among homebuilders is slumping, demonstrate that the yearlong housing slump isn't abating.

Tighter lending standards have made it more difficult for buyers to get home loans. At least 50 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006.

U.S. homebuilders have already said that the spring selling season for new houses was a disappointment after earlier this year forecasting the beginning of a housing recovery.

The National Association of Home Builders/Wells Fargo index of sentiment fell to 30 this month from 33 in April, matching a 15-year low reached in September, the Washington-based builder's group said today. Readings below 50 mean most respondents view conditions as poor.

U.S. foreclosure filings jumped 62 percent in April from a year earlier and the number of households falling behind on mortgages probably will climb further this year as home prices fall and lending standards rise, RealtyTrac Inc. said.

Foreclosures Rise

California, Florida and Ohio led the U.S. in filings. There were 147,708 default notices, auction sale letters and bank repossessions last month as declining prices made it harder to refinance, particularly for borrowers with poor or limited credit, the Irvine, California-based seller of foreclosure data said today. April's total compares with 91,168 filings a year earlier.

Foreclosures are being ``fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation,'' said James Saccacio, chief executive officer of RealtyTrac, in a statement.

The city with the biggest drop in median home price in the first quarter was Elmira, New York, with a 15 percent decline to $75,300, making it the cheapest housing market in the nation, according to the realtors' group. The city's unemployment rate was 5 percent in March, compared with 4 percent statewide, according to the New York State Department of Labor.

Sarasota, Florida, had the second-biggest price drop, down 12 percent to $337,000, followed by an 11 percent decline in New Orleans, to $155,900.

New York Area Prices

The largest price increase was in Cumberland, Maryland, up 17 percent to $100,000, followed by Port Arthur, Texas, gaining 16.5 percent to $115,800.

The median price for a single-family house in the metropolitan area surrounding New York City grew 1 percent to $463,700. That area includes New York suburbs north of the city as well as northern New Jersey and parts of Long Island.

New York's Nassau and Suffolk counties gained 0.8 percent to $479,800. Prices in an area of New Jersey that includes Newark and Union rose 4.5 percent to a median of $423,700. Prices in Edison, New Jersey, dropped 3.4 percent to $363,500, the realtors said.

In Connecticut, the median price in areas including Bridgeport, Stamford and Norwalk dipped 0.2 percent to $470,900. In New Haven, the median gained 2.1 percent to $282,200.

The nation's most expensive single-family home market was the San Jose and Santa Clara areas of California, where the median house price was $788,000. The metropolitan area of San Francisco was second, at $748,100.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

Last Updated: May 15, 2007 14:29 EDT