Sales of existing homes dropped 3.1% in October to a seasonally adjusted annual rate of 4.98 million units, the National Association of Realtors reported Monday.

The pace came on top of a downwardly revised 5.14 million in September and are 1.6 percent below the 5.06 million-unit level in October 2007.

"Many potential home buyers appear to have withdrawn from the market," said Lawrence Yun, NAR chief economist. "This is why a housing stimulus is so critical now to encourage more buyers to draw down the inventory and stabilize home prices. Without home price stabilization, there will not be an economic recovery."

Total housing inventory at the end of October slipped 0.9 percent to 4.23 million existing homes available for sale, a 10.2-month supply, up from a 10.0-month supply in September.

The national median existing-home price for all housing types was down 11.3% from October, 2007 at $183,300, a level not seen since March, 2004. The decline was the sharpest in the 40 year history of the NAR survey. The Realtors said the drop was due in part to "a significant downward distortion in the current price from a large number of distress sales at discounted prices."

Single-family home sales were down 3.3% from September to an annual rate of4.43 million, flat with last October. The median price, however, dropped 11.2% to $181,000 during the same period.

Existing condominium and co-op sales were down 1.8% to an annual rate of 550,000 units in October, 12% below a year ago. The median existing condo price was $193,000 in October, down 13% year-over-year.

Regionally, existing-home sales in the Northeast fell 1.2% to an annual pace of 830,000 , 9.8% lower than a year ago, with the median price down 9.8% to $241,700. Sales in the West dropped 1.6% to a rate of 1.21 million, a gain of 37.5 percent from October 2007, but the median price was down 27% to $231,400. The South declined 3.2% to a pace of 1.84 million, 10.2% below a year ago, with the median price off 5.8% to $161,100. The Midwest was off 6.0% to 1.1 million, 9.1% below October 2007, with the median price down 6.7% to $149,400.

The sales figures were slightly below the estimates of analysts on Wall Street. Carl Reichardt, home building analyst at Wachovia Securities, put out a research note stating, "While the nationwide median price decline was the most significant on a yr/yr basis in at least 40 years, the majority of the compression was driven by the West where single family median prices fell 24.4%. The West's unit volume and price declines are being driven by foreclosures/distressed sales. We do not believe existing home inventories in key markets in the West--such as Phoenix, Las Vegas, and the Inland Empire--are declining, suggesting that additional supply continues to offset increased turnover volume."

Stephen East at Pali Research was buoyed by the numbers. "Month after month we, and most others, have warned that the situation is worsening, yet sales levels and inventory levels continue to be respectable," he wrote in a note to investors. "Let's face it, despite all the negative spin, we are still running at nearly 5 million homes sold per year. Given this environment, that is an astounding number."