INSTANT VIEW: Existing home sales post surprising drop

NEW YORK (Reuters) - Sales of previously owned U.S. homes unexpectedly fell in August, a survey showed on Thursday, a minor setback for the housing market's recovery from a three-year slump.

KEY POINTS: * Sales of previously owned U.S. homes unexpectedly fell in August, a survey showed on Thursday, a minor setback for the housing market's recovery from a three-year slump. * The National Association of Realtors said sales fell 2.7 percent to an annual rate of 5.10 million units, from 5.24 million units in July. That compared to market expectations for a 5.35 million unit pace.

NAR Chief Economist Lawrence Yun said the August pace was the second-highest in 23 months. Compared to August last year, sales were up 3.4 percent.

COMMENTS:

RONALD SIMPSON, MANAGING DIRECTOR, GLOBAL CURRENCY

ANALYSIS, ACTION ECONOMICS, TAMPA, FLORIDA:

"The headline was a little bit softer than expected. Wall Street gave back its gains and turned negative on the S&P 500, so I think it again turns into a risk backdrop. The dollar benefits from a little bump-up in risk aversion.

"The bright spot from this housing report -- and maybe it will come back to impact the market later on -- is the inventory of homes for sale fell 10.8 percent down to 8-and-a-half months' supply. That probably bodes well for prices going forward, as we continue to whittle down these inventory numbers."

GARY THAYER, MACROSTRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS,

MISSOURI:

"The drop in home sales was a bit disappointing, but a down month after four months of increases is not unusual. We still think there is good demand for housing. Low prices and low mortgage rates have made housing very affordable. A lot of buyers have been moving off the fence. August sales were soft, but we don't think it's a resumption of the downtrend."

KEITH HEMBRE, CHIEF ECONOMIST, FIRST AMERICAN FUNDS,

MINNEAPOLIS, MINNESOTA:

"The overall number was a little bit disappointing. But there's probably some good news in that even though sales were a bit weaker the supply came down pretty meaningfully from 9.3 to 8.5 months, so continuing to make our way back to a bit more balanced number.

"It could be that diminished oversupply in the existing market is providing a bit of a benefit to the homebuilders.

"But there are a couple of policy issues. By March of next year now when the Fed's out of the mortgage market, I think you'll see mortgage spreads tend to move higher. And the $8,000 tax credit which expires at the end of November is pretty meaningful as well. When you put that in the context of a median home price of $177,000, that's a 4.5 percent discount."

STEPHEN MASSOCCA, MANAGING DIRECTOR, WEDBUSH MORGAN IN SAN

FRANCISCO:

"The market is very extended, it's had a huge run here, there is a lot of deals coming. We are susceptible to bad news and maybe it's the correction everyone has been waiting for."

MARTY MITCHELL, HEAD OF GOVERNMENT BOND TRADING, STIFEL

NICOLAUS, BALTIMORE:

"I think those that think we've reached a bottom in housing are going to be sorely disappointed going forward and are somewhat in denial in my opinion. I'm not surprised to see a number weaker than expected, substantially weaker than expected."

"Treasuries have been moving in a very, very tight range. I think we did lift up off the lows a little bit but nothing dramatic."

HOWARD SIMONS, STRATEGIST WITH BIANCO RESEARCH IN CHICAGO:

"What we are starting to do right now is exhaust some of the supply of foreclosed homes coming up for sale. One of the problems is that nobody has ever had this experience of modeling housing data with this sort of foreclosure inventory out there."

JAY BRYSON, GLOBAL ECONOMIST, WELLS FARGO SECURITIES,

CHARLOTTE, NORTH CAROLINA:

"It's not as strong as the market had expected. The pending home sales numbers have been trending up for a while. It could mean people can't find financings to close. It's not the end of the world, even as they came in weaker than expected.

"In general, the housing market at the minimum has stabilized, but they are still at very low levels. No realtors and developers are going to say things are good. House prices are still down in many parts of the country. Still conditions are in place for a recovery on the housing front."

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK & CO, NEW

YORK:

"On the surface it's less than expected, which could be a hangover from the big bounce we saw in the previous month. The chief economist of the NAR said the give-back relative to July and to expectations was because of a longer closing process. I think overall, with supply falling, that's a definite positive. The question is what's the shadow inventory that's going to a dampener on the market for a while."

MARKET REACTION: STOCKS: U.S. stock indexes pulled back from gains. BONDS: U.S. Treasury debt prices gained slightly. DOLLAR: U.S. dollar rose against the yen and euro.