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The National Association of Realtors reported yesterday that sales of existing homes and condominiums dropped by 4.1 per cent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

'The housing sector is fragile,' said David Lereah, the association's chief economist.

The median price of a home sold last month was US$230,000. That was up just 0.9 per cent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less. The inventory of unsold homes in July rose to a record high of 3.86 million. That represents a supply of homes still available for 7.3 per cent of a month. That is the longest period to exhaust the supply of homes since the spring of 1993.

By region, sales dropped by 5.4 per cent in the North-east. They fell by 5.9 per cent in the Midwest and 1.2 per cent in the South. Sales declined by 6.4 per cent in the West.

Yesterday's report shows that the bloom is off the rose. For five years running, home sales had hit record highs as low mortgage rates lured buyers. But the housing sector has lost steam this year as mortgage rates have gone up and would-be buyers have grown cautious amid high energy prices and a slowing economy.

Against that backdrop, the Federal Reserve earlier this month decided to halt a rate-raising campaign that had pushed interest rates steadily higher over the last two-plus years to fend off inflation.

The Fed's goal is to raise rates sufficiently to thwart inflation but not enough to hurt the economy.

One of the things that Federal Reserve Board chairman Ben Bernanke and his colleagues are watching closely is the housing slowdown. If home prices and sales were to crash, that could spell big trouble for the overall economy. Thus far, Mr Bernanke has said the market's slowdown has been fairly orderly and smooth.

Mr Lereah said he still expects a 'soft landing' for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again - which some analysts have said is a possibility.

The housing sector's transition from a red-hot market to a cool one has important implications for the overall economy. - AP