updated 5/25/2006 2:19:29 PM ET 2006-05-25T18:19:29

Sales of existing homes fell in April, and the price posted the smallest increase in 4½ years, new signals that the nation’s once red-hot housing market has cooled.

The National Association of Realtors said Thursday that sales of previously owned single-family homes and condominiums dropped by 2 percent last month to a seasonally adjusted sales pace of 6.76 million units.

The median price of homes sold in April rose to $223,000, an increase of 4.2 percent from April 2005. That represented the smallest year-over-year price gain since September 2001.

The price increase in April was far below the double-digit price gains that home sellers enjoyed last year. Sales of both new and existing homes set new records for five straight years as the housing industry enjoyed a boom powered by the lowest mortgage rates in more than four decades.

However, rates have been rising this year, with 30-year mortgages climbing this week to a nearly four-year high of 6.62 percent, mortgage giant Freddie Mac reported Thursday.

David Lereah, chief economist for the Realtors, said he expected the 30-year mortgage would keep rising and would be near 7 percent by the end of the year. He said that was consistent with his view that the country was heading for a soft landing in housing but not a crash.

However, other economists worry that with a large overhang of unsold homes and rising mortgage rates, the industry could be facing a more severe outcome.

For April, the total number of unsold homes hit a new record of 3.38 million units, which represented a six-month supply at the April sales pace. The time period needed to exhaust the current supply was the highest since January 1998.

“Inventory levels are simply out of sight,” said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm. “Something has got to give and that is likely to be prices.”

By region, sales fell 3.7 percent in the Midwest, 1.9 percent in the South, 1.4 percent in the West and 0.8 percent in the Northeast.

Lereah said the data the Realtors are collecting indicate the housing industry is still experiencing a split personality with once hot markets in Florida, California and Arizona slowing down while some housing markets which had been lagging behind the front-runners are starting to take off.

He said the new hot markets were in Texas, North Carolina, South Carolina, Ohio, Georgia, Utah and New Mexico.

“This is a tale of two markets. Half of the country is heating up and half the country is cooling off,” Lereah said.

For now, analysts are forecasting that prices will rise by around 6 percent this year while sales will drop by around 10 percent.

For April, sales of single family homes dropped by 2 percent to an annual rate of 5.92 million units while sales of condominiums fell 2.7 percent to an annual rate of 839,000 units.

The sales price for condominiums fell by 0.2 percent, the first year-over-year price drop since the spring of 1995.

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