Business

WASHINGTON (CBS News) ― Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years.

The National Association of Realtors said that sales of existing single-family homes dropped by 4.3 percent in August, compared to July. Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002.

The housing market has been battered by the steepest downturn in 16 years. Those problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising defaults in subprime mortgages.

President Bush has asked for flexibility from mortgage companies and now CBS News correspondent Peter King reports that Countrywide says it's changing the terms so 35,000 borrowers can avoid foreclosure.

"The company says the changes will include repayment plans and payment postponements for some clients," King said. "Others will have their loans refinanced or changed to bring them out of default. The company also says that the foreclosure crisis has been overstated and that the real problem is that people are buying new homes and just can't sell their old ones."

The median price of an existing home -- the point where half sold for more and half for less -- edged up slightly in August to $224,500, an increase of 0.2 percent from August 2006. It marked the first year-over-year price increase after a record 12 straight months of declining prices.

However, many analysts believe that sales and prices will fall further as the housing market receives additional blows from rising default rates that are dumping more homes on an already glutted market and causing lenders to tighten standards. These factors have made it harder for potential borrowers to qualify for loans.

Former Chairman of the Board of Governors of the Federal Reserve Alan Greenspan tells CBS News in a radio interview that house prices will plummet. Greenspan added that interest rates, especially for 30-year mortgages, will soar and that consumers should expect 8 percent as a "normal" level in the decades ahead.

A separate report on housing prices done by Case-Shiller showed home prices fell by 3.9 percent in July in its 20-city index. Economists said that decline was probably a better reflection of where the market is right now.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, predicted "worse to come thanks to tighter credit conditions."

The Federal Reserve responded last week to fears that all the problems in housing and credit markets could cause a recession by cutting a key interest rate by a bigger-than-expected half point.

Many economists believe that if the Fed continues to cut rates for the rest of the year that should be enough to keep the country out of a recession.

Sales were down in all parts of the country in August. The West saw the biggest drop, a decline of 9.8 percent, followed by declines of 5.2 percent in the Midwest, 2.7 percent in the South and 2 percent in the Northeast.

The fall in sales pushed the inventory of unsold homes to a record 4.58 million in August. That means it would take 10 months to exhaust the inventory of homes on the market at the August sales pace, also a record figure.

Analysts said that the credit crunch in August, which sent stock prices plunging around the globe, had a significant impact on the availability and interest rate levels for so-called jumbo mortgages, loans above $417,000.

"The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through," said Lawrence Yun, senior economist for the Realtors.

"Once we get through these disruptions, we'll get a better sense of where the actual market is in late fall as conditions begin to normalize," Yun said.

However, other private economists are forecasting that sales of both existing and new homes will not stabilize until mid-2008 because they believe it will take that long for prices to fall far enough to reduce the large number of unsold homes.

(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)