Existing home sales drop 3.8%

NEW YORK (CNNMoney) -- Sales of existing homes fell in May, as severe weather and high gas prices weighed on the shaky housing market.

Home sales fell 3.8% to a seasonally adjusted annual rate of 4.81 million, down from a revised rate of 5 million in April, the National Association of Realtors said Tuesday.

Sales were more than 15% lower than in May 2010.

Economists had expected a May sales rate of 4.79 million existing homes, according to consensus estimates from Briefing.com. (Read: Five years, no mortgage payment)

"Spiking gasoline prices along with widespread severe weather hurt house shopping in April, leading to soft figures for actual closings in May," said NAR chief economist Lawrence Yun.

Gas prices surged earlier this year, pinching household budgets and putting a damper on consumer spending. In addition, sales were hurt by tornados and flooding in May that devastated parts of the South and Midwest.

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Sales fell more than 6% in the South and were down over 5% in the Midwest. By contrast, sales fell 2.5% in the Northeast and were flat in the West.

Yun called the drop in May sales "disappointing," but he expects the market to pick up in the second half of the year, given the recent decline in gas prices.

NAR also said that the national median price for existing homes of all types fell 4.6% in May to $166,500.

While sales had stabilized somewhat earlier this year, the market for existing homes has been working through aglut of foreclosed properties for years -- a trend that has weighed on prices.

In May, distressed homes accounted for 31% of all sales, which typically sell for about 20% less than homes that aren't in foreclosure, according to NAR.

Yun said the long and painful drop in home prices "could be diminishing" as some buyers look to take advantage of what he called the highest affordability conditions in 40 years.

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He warned, however, that existing home sales are being held back by "restrictive loan underwriting standards."

"There's been a pendulum swing from very loose standards which led to the housing boom to unnecessarily restrictive practices as an overreaction to the housing correction -- this overreaction is clearly holding back the recovery," said Yun.