U.S. home sales will tumble to a five-year low this year as the widening credit crunch reduces the number of buyers who can get mortgages, the National Association of Realtors said Wednesday.

The group lowered its outlook for the eighth time this year and said sales of previously owned homes probably will fall 6.8 percent to 6.04 million in 2007, the lowest since 2002. New-home sales, which account for about 15 percent of the housing market, probably will fall 19 percent to 852,000, a 10-year low.

'Mortgage disruptions will hold back sales over the short term,' Lawrence Yun, an economist for the group, said in the report.

Demand for some types of mortgages from Wall Street firms that package them into securities has dried up as rising defaults and delinquencies in the subprime market spread to borrowers with better credit ratings. The cash crunch has crippled lenders such as American Home Mortgage Investment Corp., which filed for bankruptcy protection this week.

'The level of uncertainty over the housing recession has gone up with this most recent turbulence,' said Michael Darda, chief economist for MKM Partners in Greenwich, Conn. 'Housing will be under stress for a while.'

Carlos Fuentes, president of the Greater Tampa Association of Realtors, said the credit crunch is affecting local sales as well.

Buyers don't just look at the cost of a home, he said. People decide whether they can afford the mortgage each month. As home prices went up during the boom years, creative financing such as adjustable-rate mortgages helped some buyers purchase homes they otherwise couldn't afford. Many of those financing opportunities aren't offered now.

'Programs that used to require a certain credit score now require a higher one,' Fuentes said. 'That has left some buyers out of the market.'

Home sales will begin to improve in the final three months of 2007, rising to 6.08 million on an annualized basis from a bottom of 5.85 million in the third quarter, the Realtors group said.

In every forecast so far this year the group has projected a housing recovery for 2007, even as it cut sales estimates. A month ago, it said the bottom of the market would be in the second quarter, with sales rising in the current period.

'The NAR's forecasts are reflecting conventional wisdom, and I think there is a much longer-run negative uncertainty,' said Robert Shiller, co-founder of MacroMarkets LLC.

The decline in housing sales could last 'for some years' and may spark an economic recession, said Shiller, a professor at Yale University in New Haven, Conn.

The Realtors' forecast came as mortgage applications in the United States rose last week by the most since January and shares of home builders rose after Toll Brothers, the largest U.S. luxury home-builder, reported a drop in revenue that was less than analysts had expected.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan jumped 8.1 percent to 656.5 from 607.1 the previous week. The group's gauge of demand for credit for home purchases gained 7.4 percent, and a measure of refinancing increased 9.1 percent.

Toll reported a 21 percent decline in third-quarter revenue, less than the 29 percent drop projected by analysts. The builder said the credit crunch is curtailing demand.

Federal Reserve policy-makers Tuesday held their interest-rate target at 5.25 percent for a ninth time and said inflation is the biggest risk for the economy.

They also acknowledged that persistent declines in housing, stricter lending standards and volatile financial markets have raised concerns about growth 'somewhat.' Still, they projected the economy would continue to expand.

Tribune reporter Shannon Behnken contributed to this report.