WRAPUP 3-US home sales rise, price slump points to weakness

* Home resales up 2.7 pct in Jan on distressed sales

* Supply at 7.6 months, median price lowest since 2002

* Home loan applications rise in latest week
(Recasts lead, updates markets to close)

By Lucia Mutikani

WASHINGTON, Feb 23 (Reuters) - Surging sales of distressed
properties pushed prices for previously owned U.S. homes to a
near nine-year low in January, even as they helped to lift
overall sales to an eight-month high.

The National Association of Realtors said on Wednesday
existing homes sales climbed 2.7 percent to an annual rate of
5.36 million units, marking the third straight month of gains.
Economists had expected a fall to a 5.24 million-unit pace.

But foreclosures and short sales, which typically occur
below market value, accounted for 37 percent of the
transactions and suggested further price declines ahead. The
median home price fell 3.7 percent from a year ago to $158,800,
the lowest since April 2002.

"What this shows is that there will be an ongoing
adjustment to prices to the downside. Housing fundamentals are
still weak," said Neil Dutta, an economist at Bank of America
Merrill Lynch in New York.

Data on Tuesday showed prices for single-family homes
tracked by Standard & Poor's/Case Shiller fell for a sixth
straight month in December, and some economists warned they
could fall another 25 percent.

U.S. financial markets ignored the data as investors kept a
wary eye on the unrest in Libya, which drove U.S. crude for
April delivery CLc1 to a 28-month high of $100 a barrel,
before settling at $98.10.

U.S. stocks .SPX fell for a second day, while the dollar
weakened against a basket of currencies .DXY.

An overhang of foreclosed properties is weighing down the
housing market even as the broader economy has entered a
sustainable growth path. Housing was at the core of the worst
recession since the 1930s.

Sales rose even as demand for home loans slumped in
January. The NAR has been accused of overstating the rate of
home sales by as much as 20 percent.

While acknowledging the trade group might have overcounted
sales, NAR chief economist Lawrence Yun told reporters: "I
would be highly surprised if it was 20 percent."

The NAR is reviewing its data and will release benchmark
revisions later this year. Yun said the last benchmark
revisions in 2000 showed an overcounting of about 13 percent.

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INSTANTVIEW-US existing home sales [ID:nN23147045]

Graphic-Existing home sales: r.reuters.com/tut28r

Graphic-US mortgages: Mortgage applications rose last week

r.reuters.com/vys28r

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CASH TRANSACTIONS ON THE RISE

Despite the weak housing market, luxury homebuilder Toll
Brothers (TOL.N) reported a surprise quarterly profit, with
average home prices rising 7 percent to $586,000. However, the
company expects a decline to a range of $540,000 to $565,000
for the rest of the year. For details see [ID:nSGE71M070].

The share of distressed sales last month, at 37 percent,
was the highest in a year. All-cash purchases made up 32
percent of transactions compared with 29 percent in December.
Analysts said this partly explained why home resales had
surprised on the upside, when home loan applications had
dropped sharply.

"So far in February, mortgage applications have fallen,
which could be reflected in resales numbers in the next
report," said Yelena Shulyatyeva, an economist at BNP Paribas
in New York.

Applications for home loans rebounded last week as buyers
rushed to take advantage of a slide in mortgage rates in the
wake of the growing unrest in the Middle East, the Mortgage
Bankers Association said. [ID:nEFE7DA005]

The existing home sales report also showed a shift in the
housing market becoming more pronounced, with growth in
multifamily units outpacing single-family homes.

Demand for rental apartments is on the increase, boosting
sales of multifamily dwellings, as families lose their homes to
foreclosure and prospective homeowners shy away from owning a
property because of falling values.

Paul Dales, a senior U.S. economist at Capital Economics,
estimates there is an oversupply of 850,000 homes on the
market, with another 4.5 million in the foreclosure pipeline.

At January's sales pace, the supply of existing homes on
the market fell to 7.6 months' worth, the lowest since December
2009, down from 8.2 months' worth in December.

A supply of between six and seven months is generally
considered as ideal, with higher readings pointing to lower
house prices.

"While the acceleration in demand is encouraging, prices
are likely to remain weak as the pipeline of foreclosures
slowly makes its way onto the market," said Omair Sharif, an
economist at RBS in Stamford, Connecticut.
(Editing by James Dalgleish)