May 25 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly fell in April to the lowest level in almost four years, dimming prospects for a quick recovery in the housing industry.

Purchases fell 2.6 percent to an annual rate of 5.99 million last month from 6.15 million in March, the National Association of Realtors said today in Washington. A measure of the supply of homes for sale rose to the highest since August 1992.

The decline comes a day after a government report showed sales of new homes surged as buyers took advantage of a slide in prices. Today's figures suggest that owners of existing homes may have to cut prices further during the prime spring selling season. The drop also reflects the impact of banks making it tougher to get subprime loans, a response to rising defaults.

``The housing market correction won't be resolved quickly,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``Downward pressure on prices will persist and sales will be sluggish for some time.''

Resales were expected to be at a 6.12 million annual rate, unchanged from the originally reported March figure, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 5.9 million to 6.4 million. Logan forecast a 6 million pace.

Inventory Grows

The number of previously owned unsold homes on the market at the end of April represented 8.4 months' worth at the current sales pace. The supply of homes for sale increased 10.4 percent to 4.2 million last month.

Purchases fell in all four regions. They declined 8.8 percent in the Northeast and 0.7 percent in the Midwest. They slid 1.2 percent in the South and 1.7 percent in the West.

The median price of an existing home fell 0.8 percent last month from a year earlier to $220,900.

Resales of single-family homes declined 2.4 percent in April to an annual rate of 5.22 million, the report said. Sales of condos and co-ops dropped 3.8 percent to a 770,000 annual rate.

``There is just no way that the housing slump is over,'' said Roger Kubarych, chief U.S. economist at UniCredit HVB in New York.

Sales of new homes jumped 16 percent in April, the Commerce Department reported yesterday, as buyers took advantage of the biggest decline in median prices since 1970. New homes make up about 15 percent of the market.

Timely Barometer

Economists consider sales of new homes a more timely barometer because they are recorded when a contract is signed. Figures on home resales are compiled from contract closings and may reflect agreements reached a month or two earlier.

The housing slump helped reduce the pace of economic growth last quarter to an annual 1.3 percent, the slowest in more than four years. Federal Reserve policy makers say housing remains a risk to their forecast that growth will pick up later this year.

The Realtors group forecasts resales will fall 2.9 percent this year, after an 8.5 percent drop in 2006, and the median price of an existing home will drop 1 percent.

A recovery in housing is being held back by a wave of subprime mortgage defaults, which is throwing homes back onto the market and prompting banks to tighten lending standards for borrowers with poor or limited credit histories.

`Spillovers'

Curbs on subprime lending ``are expected to be a source of some restraint on home purchases and residential investment in coming quarters,'' Fed Chairman Ben S. Bernanke said May 17. Even so, Bernanke said he doesn't foresee ``significant spillovers'' from the subprime market to the rest of the economy.

At least 50 subprime lenders have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data, leading to a smaller supply of money for lending.

Builders are still struggling. Toll Brothers Inc., the largest U.S. luxury home builder, yesterday reported a 79 percent plunge in profit in the quarter ended April 30.

The Horsham, Pennsylvania-based company didn't provide an earnings forecast for the rest of the year because of ``uncertainty'' about the pace of sales and the direction of the market.

``We continue to operate conservatively in the current difficult market,'' Chief Executive Officer Robert Toll said in a statement. Still, he said he was ``a little more confident'' than he was on a May 9 call.

Affordability

Lower prices and higher incomes may make homes more affordable, drawing buyers back into the market. Affordability has improved since the second quarter of last year, when it slipped to the lowest since at least 1992.

Robert Niblock, chief executive of home-improvement retailer Lowe's Cos., said on a May 21 conference call that the housing market is ``at or near the bottom.'' Lowe's, based in Mooresville, North Carolina, lowered its annual earnings forecast after fewer home sales hurt demand for cabinets and appliances last quarter.

Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

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

Last Updated: May 25, 2007 12:47 EDT