Existing-home sales fell 5.3% from December to a seasonally adjusted annual rate of 4.49 million units in January, an 8.6% drop from January, 2008, the National Association of Realtors reported Wednesday. The annual rate was the lowest since 1997.

The national median price, driven by short sales and foreclosures, fell 14.8% from a year ago to $170,300. The NAR esimated that 45% of homes sold nationally in January were distressed properties. That percentage varied widely market to market, the NAR said, citing an 80% rate of distressed sales in Santa Ana, Calif. and a 20% rate around Chicago.

Total housing inventory 2.7% to 3.6 million existing homes available for sale, a 9.6-month supply at the current sales pace. Lawrence Yun, the NAR's chief economist, said the inventory decline was good news.

"The drop in total inventory is an encouraging sign because the number of homes on the market has declined steadily since peaking in July 2008, and inventory is at the lowest level in two years," said Yun.

Single-family sales fell 4.7% month to month and 7.1% year over year to a seasonally adjusted annual rate of 4.05 million. The median single-family price, meanwhile, dropped 13.8% to $169,900.

Existing condominium and co-op sales dropped 10.2% to a rate of 440,000 units, and are 20.3% below a year ago, and the median price plunged 20.6% year over year to $174,400.

Regionally, existing-home sales in the Northeast dropped 14.7% to an annual pace of 640,000 in January, 23.8% below January 2008, with the median price down 14.7% to $228,200. Sales in the Midwest fell 5.7% to a rate of 1.0 million, 16.7% below a year ago, with the median price falling 6.8% to $138,100. Sales in the South declined 5.7% to an annual pace of 1.64 million, 15.9% below January 2008. The median price in the South fell 7.4% to $152,100. Existing-home sales in the West were flat with December and up 29% from January, 2008. The median price, however, plunged 25.5% to $220,000.

"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,"said Yun. NAR estimates about 900,000 additional home sales in 2009 will be generated by the tax credit and stimulus package. It also expects inventory to fall below an 8-month supply by yearend, which it said "would be consistent with home price stabilization."