Feb. 25 (Bloomberg) -- Sales of previously owned U.S. homes unexpectedly declined in January even as falling prices made them more affordable, signaling that the housing slump is further from a bottom than previously estimated.

Purchases fell 5.3 percent to an annual rate of 4.49 million, the fewest since 1997, the National Association of Realtors said today in Washington. The median price dropped 15 percent from a year ago to a six-year low of $170,300. Distressed properties accounted for 45 percent of all sales.

“This is actually a very disappointing set of numbers,” Ethan Harris, co-head of economic research at Barclays Capital Inc., said in a Bloomberg Television interview. “We’re still in this phase of the recession where it’s really kind of a dramatic pulling back” in purchases of big-ticket items, due to a “tremendous loss of confidence in the economy.”

Americans may have been waiting for details of President Barack Obama’s plans aimed at stemming foreclosures and declining home values that are at the core of the economic slump, the NAR said today. The report sent stocks lower, with the Standard & Poor’s 500 Stock Index heading for its seventh decline in eight days. It was at 753.24 at 10:48 a.m. in New York.

Year-End Bottom

The government initiatives to boost housing and the economy may lift home resales by about 900,000 this year, Lawrence Yun, the group’s chief economist, said during a press conference. That will help trim inventory and may stabilize prices by the end of the year, he said.

Economists had forecast resales would rise to a 4.79 million annual rate from 4.74 million in December, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from 4.5 million to 4.91 million.

Sales were down 8.6 percent compared with a year earlier.

The number of unsold homes on the market at the end of January represented 9.6 months’ worth at the current sales pace, up from 9.4 months at the end of December.

Resales of single-family homes decreased 4.7 percent to an annual rate of 4.05 million. Sales of condos and co-ops dropped 10 percent to a 440,000 rate.

Purchases declined in three of four regions, led by a 15 percent decline in the Northeast. Sales were unchanged in the West.

Home sales have been falling since 2005 and prices peaked in 2006. The S&P/Case-Shiller home-price index of 20 metropolitan cities was down 18.5 percent in December from a year earlier, a record decline, the group said yesterday.

Job Market

“It’s going to be very difficult for the housing market to find its footing with the unemployment rate continuing to trend higher,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities in New York. “There is a huge inventory overhang, so we need prices to come down further.”

The drop in prices and declining mortgage rates have made buying a home more attractive. The National Association of Realtors affordability index reached a record high 158.8 in December.

The average rate on a 30-year fixed mortgage fell to a record low 4.96 percent in the week ended Jan. 15, according to Freddie Mac.

Prices are likely to keep falling. Home foreclosures were up 17.8 percent in January from a year earlier, according to RealtyTrac Inc., an Irvine, California-based seller of default data. A total of 274,399 properties got a default or auction notice or were seized by banks, the 10th straight month that foreclosures topped 250,000.

Obama’s Plan

Obama last week introduced a plan to help as many as 9 million people restructure their mortgages to avoid foreclosures. The Treasury Department last week also said it will double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion for each company.

Mounting foreclosures triggered a credit crisis which in turn has deepened the U.S. recession that began in December 2007. Economists surveyed by Bloomberg this month projected the economy will continue to contract at least through the first half of this year and that unemployment will rise to a 25-year high of 8.8 percent by the end of 2009.

Federal Reserve officials don’t see labor markets improving until 2011, after economic growth gains traction. Fed Chairman Ben S. Bernanke yesterday said the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system.

The competition from distressed sales is hurting builders. Standard Pacific Corp., based in Irvine, California, reported its ninth straight quarterly loss on Feb. 13. New home deliveries fell 47 percent, backlogs declined 50 percent and the cancellation rate was 33 percent, the company said.

“We saw our sales absorption rate, our cancellation rate and general traffic levels deteriorate beyond normal seasonal changes,” Chief Executive Officer Ken Campbell said in a statement. He said he expected home prices to decline further.

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

Last Updated: February 25, 2009 10:50 EST