The National Association of Realtors reported Monday that sales of existing single-family homes and condominiums dropped by 0.3 percent to 5.99 million units in May, the slowest sales pace since June of 2003.
The median price of a home sold last month dropped to $223,700, down 2.1 percent from a year ago. It marked the 10th straight price decline compared with a year ago, the longest stretch of weakness on record.
The sales decline reflected weakness in the South, where sales dropped by 3.4 percent, and the West, where sales were down by 0.8 percent.
Sales actually showed strength in the Northeast, rising by 5.8 percent, and the Midwest, where they were up 0.7 percent.
In a troubling sign for the future, the inventory of unsold homes rose by 5 percent to 4.43 million units in May, a level that would take 8.9 months to clear out at the May sales pace. That is the highest inventory level since the last deep slump in housing in 1992.
Analysts said housing is being hurt currently by high inventories and the recent crisis in subprime mortgages, which has caused lenders to tighten their standards, making it harder for potential buyers to qualify for loans.
They said all of the housing troubles seem to be causing a crisis in confidence, making people delay decisions to buy homes.
"I think psychological factors are currently the biggest drag on the housing market, in addition to a disruption from tighter credit for subprime borrowers," said Lawrence Yun, senior economist with the Realtors.
"Household formation has slowed dramatically since late 2006, implying that many people are doubling-up. They're adding roommates are moving in with parents," he said.
The current slump in housing is the worst since the 1989-92 downturn. It is occurring after a prolonged boom that saw sales of new and existing homes set new records for five consecutive years.
Analysts believe that the median home price, the midpoint where half the homes sold for more and half for less, will continue falling until builders move further to cut back on production of new homes coming on the market.
The Realtors are predicting that the median home price will decline by 1.3 percent this year while sales are forecast to drop by 4.6 percent. It would be the first annual price decline in four decades of record-keeping.
Another potential problem is mortgage rates, which have been trending higher in recent weeks although they still remain below their historical averages.
According to Freddie Mac, the average commitment rate for 30-year mortgages was 6.26 percent in May, up from 6.18 percent in April.