Existing-home sales tumbled to a nearly 12-year low in January, and another big drop in prices delayed the healing of a sick housing sector.

Home resales fell 5.3% to an annual rate of 4.49 million, the National Association of Realtors said Wednesday.

Wall Street expected a 4.72 million sales rate for previously owned homes. The 4.49 million pace was the lowest since July 1997. The NAR indicated negotiations in Washington over the quickly crafted economic aid plan restrained buyers. President Barack Obama signed it Feb. 17, doling out, among other things, an $8,000 tax credit for first-time home buyers.

"Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of the housing stimulus," NAR economist Lawrence Yun said.

The median home price dropped 14.8% in January to $170,300 from the year-earlier level. The year-over-year drop in December was 15.2%. "A sustained recovery in the housing market is unlikely until home prices stabilize," Insight Economics analyst Steven Wood said.

A bloated supply of unsold homes is contributing to sharp price drops. Inventories of previously owned homes fell 2.7% at the end of January to 3.6 million available for sale. That represented a 9.6-month supply at the current sales pace.

"Unfortunately, it's still so high, at just under 10 months, that it guarantees further price falls," said Ian Shepherdson, an analyst at High Frequency Economics.

About 45% of total existing-home sales involve distressed property transactions. Increased foreclosures have undercut prices. Lower prices for existing homes have squeezed new homes out of the market. Receding demand for new homes and high inventories have forced builders to slash groundbreakings; housing starts last month were 56.2% below the level of construction in January 2008. As for new-home sales, the latest data show demand down 45% in December 2008 from the level a year earlier.

Sales of previously owned homes, year over year, were down 8.6% from the pace in January 2008, Wednesday's report said. Credit has become harder for buyers to secure. Falling prices are also softening demand, as people decide to wait for a better deal. The stock market's collapse has eroded wealth. And mass layoffs are scaring people away from the housing market.

Since the recession began in December 2007, the economy has shed 3.6 million jobs, including 598,000 jobs in January. Job losses and foreclosures have sent people moving in with families, causing a slowdown in the household formation rate.

"No doubt, the worsening economic condition is contributing to lower sales," Yun said.

The average 30-year mortgage rate slipped to 5.05% in January from 5.29% in December, according to Freddie Mac (FRE). While the slumping economy makes money cheaper, it is a weight on the minds of would-be buyers.

"If Americans are worried they won't have a job next month, next quarter or next year, you've got a real problem," Weiss Research analyst Mike Larson said. "It doesn't matter if mortgage rates are 3% or 8%. People just aren't going to buy many houses."

The NAR is looking ahead. Lower interest rates and the economic stimulus will bring about 900,000 additional home sales in 2009, the trade group estimates.

"The housing market will soon get a lift from very favorable buying conditions, not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit and higher conforming loan limits that will allow more people to tap into 50-year low mortgage rates," Yun said.

-By Jeff Bater, Dow Jones Newswires; 202-862-9249; jeff.bater@dowjones.com