Aug. 27 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in July for a fifth consecutive month, adding to the inventory of unsold properties and showing the housing slump that triggered a collapse in credit markets will drag on.

Purchases declined 0.2 percent, less than forecast, to an annual rate of 5.75 million, from 5.76 million in June, the National Association of Realtors said today in Washington. That was the slowest pace since November 2002. Sales dropped 9 percent compared with a year earlier.

With no recovery in sight for residential real estate, lower property values and harder-to-get mortgages threaten to weaken consumer spending, economists said. The Federal Reserve this month acknowledged a growing risk to economic growth in the wake of subprime mortgage defaults and a plunge in stock prices.

``We are very likely to see home sales continue to drop through the year,'' said Ethan Harris, chief economist at Lehman Brothers Inc. in New York, who accurately the forecast the July sales rate. ``There's a big imbalance between supply and demand with lots of people who want to sell and lots of hesitant buyers.''

After the report, the yield on the benchmark 10-year U.S. Treasury note was down 1 basis point at 4.6 percent. Stocks were lower.

Resales were forecast to fall 0.9 percent to a 5.7 million annual rate, according to the median forecast of 74 economists in a Bloomberg News survey. Estimates ranged from 5.5 million to 6 million. Existing home sales averaged 6.51 million in 2006.

Median Price

The median price of an existing home dropped 0.6 percent in July from a year ago to $228,900, the Realtors group said.

The supply of homes for sale at the end of the month climbed 5.1 percent to 4.59 million. At the current sales pace, that represented 9.6 months' worth, up from 9.1 months' worth at the end of the prior month.

The inventory of single-family homes represented a 9.2 months' supply, the most since October 1991.

Resales of single-family homes declined 0.4 percent to an annual rate of 5 million. Sales of condos and co-ops rose 1.4 percent to a 750,000 rate.

The Midwest accounted for all of the decline in sales. Purchases declined 2.2 percent in the Midwest and were unchanged in the South. They increased 1 percent in the Northeast and 1.8 percent in the West.

Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier, while new home purchases are recorded when a contract is signed, making them a more timely barometer. Resales account for about 85 percent of the U.S. housing market.

New Home Sales

New home sales unexpectedly rose in July for the second time this year, to an annual pace of 870,000, the Commerce Department reported Aug. 24. Purchases may show renewed weakness as turmoil in credit markets pushes some mortgage lenders out of business and prompts others to restrict lending, economists said.

The Fed cut the rate charged on direct loans to banks Aug. 17 to try to increase the availability of capital after global stock markets plunged on concern that the subprime default crisis will spread and destabilize the financial system.

``The downside risks to growth have increased appreciably,'' policy makers said in a statement that day, reversing their stance Aug. 7 that inflation was the greatest risk.

Delinquencies

Delinquencies on loans to subprime borrowers -- or people with poor credit histories -- hit a five-year high in the first quarter, and builders started work on the fewest homes in a decade in July, recent reports show.

Tighter rules for loans ``could further dampen residential investment,'' Fed Bank of Richmond President Jeffrey Lacker said Aug. 21 in a speech in Charlotte. ``Recent data on actual housing market activity have dampened my optimism'' about a bottoming-out in the industry, he said.

Lacker also predicted ``the drag from housing will continue for some time.''

Economists agree the glut of unsold properties is unlikely to ease anytime soon, and will put pressure on prices to fall further. Prospective homebuyers are waiting for better bargains, while subprime defaults and rising foreclosures raise the risk that more houses will get thrown back on the market.

Toll Brothers Inc., the largest U.S. luxury homebuilder, said third-quarter profit fell 85 percent as the deepening housing slump cut sales, increased cancellations and forced the company to write down property.

Business `Pretty Stinky'

``We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets,'' Chief Executive Officer Robert Toll said on a conference call Aug. 22. ``Traffic is pretty stinky out there.''

In wider repercussions, some firms are facing limited access to credit. Countrywide Financial Corp., the largest U.S. mortgage lender, had to tap a credit line from its banks after being shut out of the commercial-paper market. Bank of America Corp. last week agreed to invest $2 billion in the company.

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

Last Updated: August 27, 2007 10:25 EDT