Oct. 10 (Bloomberg) -- Existing home sales this year probably will fall to a five-year low, worse than forecast, signaling the U.S. housing market is far from hitting bottom.

New-home sales may decline 24 percent to a 10-year low of 804,000 and existing home sales will fall 11 percent, the National Association of Realtors said in a news release today. It was the 10th time this year the Chicago-based group lowered some part of its monthly housing and economic forecast.

Home resales tumbled to a five-year low in August as prices declined, subprime mortgage defaults soared and lenders such as Countrywide Financial Corp. raised standards even for borrowers with the best credit. Federal Reserve policy makers have said the housing market is ``exceptionally weak'' and some economists think the slump may push the U.S. into a recession.

``The credit tightening is knocking homebuyers out of a market that already was quite weak,'' said Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts.

A month ago the Realtors association called for an 8.6 percent decline in sales of previously owned homes, which account for about 85 percent of the housing market.

Existing home sales may drop to 5.78 million in 2007 from 6.48 million last year and prices for both new and existing homes are also forecast to fall, the Realtors said.

The median existing home price will drop 1.3 percent to $219,000 in 2007 and the median new home price may decline 2.1 percent to $241,400.

`Pent Up Demand'

The decline may ``help to release some pent-up demand in early 2008,'' the report said.

The decline in new home sales forecast for 2007 by the Realtors is 37 percent down from the record of 1.28 million sales in 2005. That would exceed the 25 percent three-year drop that ended in 1991, the last housing recession.

The Fed cut the interest rate it charges banks by half a percentage point to 4.75 percent at that meeting. The first reduction in four years was double the amount most economists forecast, according to a Bloomberg survey.

The rate cut likely won't give a boost to the housing market until next year, Donald Kohn, Federal Reserve vice chairman, said in an Oct. 5 speech in Philadelphia.

``Housing markets are likely to remain depressed in coming months as housing demand is restrained by the difficulty in obtaining mortgages and perhaps also by spreading expectations on the part of buyers that house prices will fall, as they already have in a number of markets,'' Kohn said.

Subprime Foreclosures

Foreclosures begun on loans to borrowers with tainted credit rose to 2.72 percent in the second quarter, the highest in more than six years, the Mortgage Bankers Association said in a Sept. 6 report. New foreclosures on all types of loans, including so-called prime mortgages that are given to the most creditworthy borrowers, rose to 0.65 percent, an all-time high, according to the Washington-based bankers' association.

The U.S. economy probably will expand at a 2 percent rate, slowing from 2.9 percent in 2006, and unemployment likely will match the 2006 rate of 4.6 percent, the NAR forecast said.

Housing starts in 2007 probably will tumble 24 percent, on the heels of a 13 percent drop last year, the real estate trade group said.

Positive Sign?

``A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,'' Lawrence Yun, an NAR economist, said in the report.

With prices in the existing home market falling, U.S. homebuilders have slashed prices and abandoned land purchases.

Lennar Corp., the largest U.S. homebuilder, reported the biggest quarterly loss in its 53-year history last month after $848 million of costs to write down the value of real estate. KB Home, the Los Angeles-based builder that has lost more than 40 percent of its value this year, reported a third quarter loss.

KB Home Chief Executive Officer Jeffrey Mezger said on Sept. 27 that he sees no sign that the housing market is stabilizing and that an oversupply of existing homes is cutting demand for new properties.

A Standard & Poor's index of the 16 biggest homebuilders dropped 42 percent this year through yesterday, led by Standard Pacific Corp., Meritage Homes Corp. and Hovnanian Enterprises Inc.

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

Last Updated: October 10, 2007 12:46 EDT