updated 6/27/2006 4:04:17 PM ET 2006-06-27T20:04:17

Sales of existing homes in May fell for the third time in five months, with the weakness led by a big drop in the Northeast.

The National Association of Realtors reported Tuesday that sales of previously owned homes dropped by 1.2 percent in May to a seasonally adjusted annual rate of 6.67 million units.

The median price of the homes sold in May rose to $230,000 in May, up 6 percent from the same month a year ago. That represented a slowdown from huge double-digit price gains last year at the peak of the housing boom.

By region of the country, sales fell by the largest amount in the Northeast, a drop of 4.2 percent. Sales were down 3.8 percent in the Midwest.

Sales of existing homes managed to post small gains of 0.7 percent in the West and 0.4 percent in the South.

Analysts said this is a classic pattern for a cooling housing market with sales starting to lag under the impact of rising mortgage rates.

David Lereah, chief economist for the Realtors, said he expected sales to fall by 6.8 percent this year from last year’s all-time high. Sales had surged to record levels for five consecutive years as buyers responded to the lowest mortgage rates in four decades.

But with mortgage rates climbing steadily under the impact of credit tightening by the Federal Reserve, analysts look for housing to slow this year but not to crash.

“There’s now a clear pattern of slower home-sales activity in many high-cost markets, which are more sensitive to rises in interest rates, and higher home sales in moderately priced areas which have experienced job growth,” Lereah said.

He said that sales have slowed in such previously hot markets as South Florida and California while continuing to post sharp gains in states such as Texas, North Carolina, Georgia and Utah.

Sales of existing homes, which account for about 80 percent of the home sales market, have been posting declines for most of this year while new home sales have been rising recently, including a 4.5 percent increase for May.

Analysts said part of the explanation for the discrepancy was a reluctance on the part of home owners to cut their asking prices in the face of a weakening market, a decision that translates into lower sales.

Builders, however, have been aggressively slashing prices or offering extras such as kitchen upgrades or the payment of closing costs to boost sales.

The Realtors report showed that the number of homes still on the market at the end of May climbed to an all-time high for the month of 3.6 million units. The number of months it would take to exhaust that inventory level at the May sales pace would be 6.5 months, the highest level since May 1997.

Analysts said they believed that home sellers in many parts of the country will soon start to trim their asking prices in response to the rising level of unsold homes. That will help to boost sales.

Lereah said he expected a housing slowdown but not a housing collapse as a strong economy keeps demand for homes at a solid level.

“Right now we are on course for a soft-landing in housing,” he said.

He said that 30-year mortgages, which are currently at 6.71 percent, could climb to 7 percent by the end of the year or even higher if the Fed goes farther in boosting interest rates than is currently expected.

Fed officials are expected to increase a key rate for a 17th time when they meet on Wednesday and Thursday.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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