Harrowing housing: The credit crunch sent purchases plunging.

Sales of previously owned U.S. homes fell in October to the lowest level in at least eight years as loan restrictions and the prospect of further price declines deterred buyers.

Purchases dropped 1.2 percent, more than forecast, to an annual rate of 4.97 million, the fewest since record keeping began in 1999, the National Association of Realtors said yesterday. Sales were down 20.7 percent from October 2006, and the median home price declined by the most on record.

Defaults on subprime mortgages have prompted banks to tighten lending standards, while foreclosures add to a glut of unsold properties that is putting pressure on home prices. Lower property values raise the risk that consumers will curtail spending, making businesses more cautious about investing and compounding a slowdown in economic growth, economists said.

Home resales had been forecast to fall 0.8 percent, to an annual rate of 5 million from a previously reported 5.04 million pace in September, according to the median estimate of 70 economists in a Bloomberg News survey. Forecasts ranged from 4.7 million to 5.2 million.

The median price dropped 5.1 percent from the year-earlier period to $207,800, the biggest decline on record.

The number of homes for sale at the end of the month rose 1.9 percent, to 4.45 million. At the current sales pace, that represented a 10.8-month supply, compared with 10.4 months in September.

The inventory of single-family homes represented a 10.5-month supply, the highest since July 1985.

Resales of single-family homes were unchanged at an annual rate of 4.37 million. Sales of condos and co-ops fell 9.1 percent to a 600,000 rate.

Purchases fell in two of four regions. They declined 1.7 percent in the Midwest and 4.4 percent in the West. Purchases were unchanged in the Northeast and the South.

"If sales were to continue to decline at this rate, it would be a big concern, but we don't expect major declines going forward," said Lawrence Yun, chief economist at the real estate agents' group.

A private report Tuesday showed home prices in 20 U.S. metropolitan areas had fallen 4.9 percent in the 12 months that ended in September. That was the biggest drop on record for the S&P/Case-Shiller home-price index, which goes back to 2001, and it marked the ninth consecutive month of declining prices.

Some economists say falling home values, by making owners feel less wealthy, may reduce consumer spending.

Consumer confidence fell more than forecast in November amid rising fuel costs and declining home prices, according to a report Tuesday from the Conference Board. Lower property values make it harder for owners to tap home equity, while gasoline at more than $3 a gallon and higher home-heating bills also weigh on Americans.

The Federal Reserve last week lowered forecasts for U.S. economic growth next year. Policymakers now expect U.S. gross domestic product to increase between 1.8 percent and 2.5 percent in 2008, "notably below" the 2.5 percent to 2.75 percent they predicted in July.