WASHINGTON - Sales of existing homes dropped for a fifth straight month in July while the number of unsold homes shot up to a record level.

Many analysts said the worst slump in housing in 16 years is likely to deepen in coming months, reflecting the recent turmoil in credit markets, which has caused lenders to tighten standards.

'We are very likely to see home sales continue to drop,' said Ethan Harris, chief economist at Lehman Bros. Holdings in New York. 'There's a big imbalance between supply and demand, with lots of people who want to sell and lots of hesitant buyers.'

Still, Lawrence Yun, an economist with the National Association of Realtors, said the housing market is holding on despite 'temporary mortgage disruptions.'

'Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months,' Yun said. 'Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize.'

In the Tampa Bay area, the number of single-family existing homes sold in July fell to 2,068, down 28 percent from the same month last year, according to the Florida Association of Realtors.

Prices also declined 7 percent in the combined metropolitan area of Tampa, St. Petersburg and Clearwater to a median sales price of $215,600.

July sales of condominiums dropped, too, but prices increased slightly. There were 543 sales in the Bay area, for a 5 percent drop. The median sales price was $172,100, up 3 percent from last July's median of $167,700.

Nationally, sales of existing homes dipped 0.2 percent in July, compared with June, to a seasonally adjusted annual rate of 5.75 million units, according to the National Association of Realtors.

The median price of a home sold last month slid to $230,200, down 0.6 percent from the median price a year ago. It marked the 12th consecutive month that home prices have declined, a record stretch.

'Worse News Lies Ahead'

The deep slump in housing, combined with recent severe turmoil in financial markets, has raised worries about a possible recession. However, many economists think the Federal Reserve will ward off a full-blown downturn by reducing a key short-term interest rate should financial market conditions fail to stabilize.

But economists said the report on existing home sales signaled further trouble ahead, given a big jump in the inventory of unsold homes, which rose 5.1 percent to a record level of 4.59 million homes.

'Unfortunately, worse news lies ahead,' said Nigel Gault, chief U.S. economist at Global Insight in Lexington, Mass. Stricter borrowing rules mean more foreclosures and fewer qualified buyers, which will be 'adding up to lower home sales and lower prices. It is hard to see a bottom before mid-2008.'

Based on the July sales pace, it would take 9.2 months to exhaust the number of single-family homes on the market, the highest level in nearly 16 years, and 11.9 months to exhaust the level of condominiums on the market. The supply of condos sitting on the market is 45.1 percent higher than a year ago.

The rising glut of unsold homes is putting downward pressure on prices. The median price of an existing home, the point where half of homes sold for more and half for less, has fallen every month for a year, something that has not occurred before on Realtors' records going back to 1969. Economists said to expect more price declines in coming months.

'We are literally swimming in an ocean of homes for sale,' said Mike Larson, a real estate analyst with Weiss Research. 'Until we work through this extremely large inventory glut, we're not going to see any momentum in home prices.'

Analysts said the financial market turbulence that has occurred in August will mean further downward pressure on home sales as big investors such as hedge funds grow more leery about purchasing mortgages that have been packaged into securities for fear that the rising number of defaults will mean they won't get repaid.

Analyst Expects Fed Rate Cut

Even before the latest market turbulence, banks and other lenders were tightening loan standards in response to rising delinquencies, especially on subprime loans extended to borrowers with weak credit histories.

'With fewer buyers qualifying for loans and lots of unsold houses out there, that makes a choice recipe for further sales declines this fall and into the winter,' said Stuart Hoffman, chief economist at PNC.

Hoffman said there is a growing threat that the severe slump in housing and sagging consumer confidence will weigh on consumer spending in the second half of this year, presenting a significant risk to the overall economy. But he said he thought the country would be able to avoid a recession because the Federal Reserve will decide at its next meeting, on Sept. 18, to cut the federal funds rate, the key benchmark rate for millions of consumer and business loans.

Hoffman said he expected the September Fed rate cut would be the first of several as the central bank steps up its efforts to combat the current turbulence. In the past two weeks, the Fed has supplied the banking system with billions of dollars to encourage banks to keep making loans and on Aug. 17 announced a half-point cut in its discount rate, the interest it charges to make direct loans to banks.

The 0.2 percent drop in July sales, compared with activity in June, marked the fifth straight monthly decline and left sales 9 percent below the level of a year ago. The sales pace was the slowest since November 2002.

By region, sales fell 2.2 percent in the Midwest and were unchanged in the South. Sales rose 1.8 percent in the West and 1 percent in the Northeast.

Yun, the senior economist for the Realtors, said he viewed the rise in sales in the Northeast as a potentially hopefully sign of a national rebound because that was the region where sales and prices first started falling after a five-year boom that ended in 2006.

Tribune reporter Shannon Behnken contributed to this report. Information from Bloomberg News and wsj.com were used in this report.