U.S. existing home sales at nine-month low, supply limited

(Adds details, analyst comments, updates markets)

* Existing home sales fall 4.9 percent in January

* Housing inventory dips from year-ago to 1.87 million

* Median house prices rise 6.2 percent from year-ago

By Lucia Mutikani

WASHINGTON, Feb 23 (Reuters) - U.S. home resales fell sharply to their lowest level in nine months in January amid a shortage of properties on the market, a setback that could temper expectations for an acceleration in housing activity this year.

The National Association of Realtors said on Monday existing home sales declined 4.9 percent to an annual rate of 4.82 million units, the lowest level since last April.

"Existing home sales are taking a bumpy road towards recovery," said Patrick Newport, an economist at IHS Global Insight in Lexington (Stockholm: LEX.ST - news) , Massachusetts.

The decline in sales, which was across all four regions, came despite the 30-year mortgage rate falling to a 20-month low. It was worse than economists' expectations for a 4.97 million unit-pace.

Tight inventories are hurting sales by limiting the selection of houses available to potential buyers. The lack of supply is also keeping house prices elevated, helping to sideline first-time buyers from the market.

There is hope a tightening labor market would spur sturdy wage growth and pull first-time buyers into the market. But unless there is a significant pickup in the number of homes available for sale, the housing recovery could remain sluggish.

Housing has so far lagged the overall economic recovery. Home sales were up 3.2 percent from a year ago.

"With labor market activity still buoyant ... we expect the housing recovery to regain some positive momentum in the coming months," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The weak report and expectations of a dovish testimony from Federal Reserve Chair Janet Yellen on Tuesday lifted prices for U.S. Treasury debt. The U.S. central bank has consistently described the housing recovery as "remaining slow."

Minutes of the Fed's Jan. 27-28 meeting suggested policymakers were in no rush to start raising interest rates. Yellen will appear before lawmakers on Tuesday and Wednesday.

The dollar rose against a basket of currencies. The U.S. housing index slipped as shares in largest homebuilder DR Horton fell 0.8 percent. Lennar Corp (NYSE: LEN - news) dropped 1.1 percent, while Pulte Group slipped 0.9 percent.

Last month, the inventory of unsold homes on the market slipped 0.5 percent from a year ago to 1.87 million. It was the second straight year-on-year decline. According to the Realtors group, supply should be rising by at least 10 percent.

Realtors and economists say insufficient equity and uncertainty about the economy's strength were forcing potential sellers to stay in their homes. A survey by the NAR showed homeowners on average staying in their homes for 10 years instead of the typical seven years.

At January's sales pace, it would take 4.7 months to clear houses from the market, down 2.1 percent from a year-ago. A six months' supply is viewed as a healthy balance between supply and demand.

There is little hope that supply will increase in the near-term. Data last week showed groundbreaking for single-family home projects fell sharply in January. Permits for future single-family home building also declined.

With supply shrinking, the median price for a previously owned home rose 6.2 percent in January from a year ago. The pace, which had been slowing after double-digit growth for much of 2013, appears to be reaccelerating.

Last month, the share of first-time buyers fell to 28 percent, the lowest since last June, from 29 percent in December. It was the second straight month of decline. Economists and real estate agents say a share of 40 percent to 45 percent is required for a strong housing recovery.

"Elevated home prices are only adding to barriers keeping first-time homebuyers and young adults from entering the housing market as prices are increasing faster than wages," said Sophia Kearney-Lederman, an economist at FTN Financial in New York.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)