US sales of previously owned homes plummeted by 20.1 per cent in the year to March as the value of American homes continued to decline and mortgage providers tightened lending conditions.

According to National Association of Realtors, the Pending Home Sales Index (PHSI) which tracks the number of contracts signed on sales of homes, fell from 103.9 in March 2007 to 83 in the same month this year.

On a monthly basis, the index fell by 1 per cent in March from a 2.8 per cent decline in February.

Kevin Logan, senior market economist at Dresdner Kleinwort, the investment bank, told Bloomberg: “The contraction in sales will continue.

“There is less incentive to purchase when prices are falling. With banks restructuring the availability of credit, it is more difficult to get a loan.''

Despite declining sales and falling home prices, which have contracted by 7.7 per cent in January to March, the PHSI expects that sales of existing homes will recover towards the end of the year, rising from 4.95 million in the first quarter to 5.39 million by year end.

However, sales of new homes will take longer to recover and are expected to fall by 30.9 per cent this year before rising 10.1 per cent to 590,000 in 2009.

Lawrence Yun, chief economist at the National Association of Realtors, said: "Things are beginning to improve, but the availability of affordable mortgages is uneven around the country and sometimes within metropolitan areas.

"As anticipated, we continue to look for a soft first half of the year, for both housing and the economy, before notable improvements in the second half."

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