NEW YORK (By Chris Isidore, CNNMoney.com) January 26, 2006 — Home sales continued to slow in December, according to a reading of real estate market strength released Wednesday that came in well below Wall Street forecasts.

The National Association of Realtors reported that existing homes sold at an annual rate of 6.6 million in December, down 5.9 percent from the revised 7 million rate in November. Economists surveyed by Briefing.com had forecast that sales would slow to a 6.87 million pace.

The report is just the latest of many to suggest the white-hot real estate market is over. It marked the first time since 2002 that the pace of home sales has slowed in three straight months. Still the December sales brought full-year sales to 7.07 million in 2005, marking the fifth straight record sales year for existing home sales, and ninth record in the past 10 years.

"This is part of the market adjustment we've been discussing, with a soft landing in sight for the housing sector," said David Lereah, NAR's chief economist, in a statement. "The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead. Overall fundamentals remain solid."

One economist said that while it's difficult for him to see home sales setting yet another record in 2006, he believes it's too soon to say that the strong real estate market is over.

"I wouldn't call it the beginning of the end. Maybe the beginning of the cooling cycle," said Phillip Neuhart, economist with Wachovia Corp. "I don't see the bottom coming out of prices, but as sales decelerate, price growth is going to decelerate."

The report also showed that both the average price and the median price slipped slightly in December compared with November, although both measures were above year-earlier levels. The median price reflects the point at which half of homes sell for more and half sell for less.

The median price stood at $211,000 in December, up 10.8 percent over the last year but down 1.8 percent from November and 5 percent below the record high of $220,000 in August.

Some economists have been worried about the popping of a so-called "housing bubble" caused by the sharp run up in home prices in recent years. But even some of those economists who have rung the bubble alarm bell recently saw the slowdown in housing shown Wednesday's report as a positive, rather than negative.

Paul Ferley, assistant chief economist for Chicago-based Harris Economics Department, said the decline in housing prices is letting the air out of a potential housing bubble. That should slow, rather than inflate, prices further toward a possible dramatic collapse.

"I think it's sort of a positive sign," he said about the lower prices. "What we've been concerned about is that during early stages of mortgage rate increases last year, you still had prices moving higher, suggesting there was more speculative activity driving the housing market."

The head of the realtors' trade group also saw the numbers a positive, despite the slowdown in buying.

"We're coming off of five years of tight supply, and many sellers are accustomed to expecting very strong price gains and exceptional returns on their investment," said a statement from Thomas Stevens, a Vienna, Va, realtor and president of the trade group. "With the supply of homes improving and buyers having more choices, the rate of price growth should come down to more normal levels this year."

Lower mortgage rates could help end the slowdown in home sales in the coming months, as it could make purchases more affordable. The survey by Freddie Mac found the average 30-year fixed rate mortgage now stands at 6.1 percent, down from the 6.33 percent average in November, when buyers of many of the homes sold in December locked in their interest rates.

Still most housing economists are forecasting that there will be a slower housing market in 2006. The Realtors' own forecast sees existing home sales are expected to fall to 6.79 million in 2006.

"We don't need to break a record every year for the housing market to be good," said Lereah in the group's forecast earlier this month. "In fact, cooling sales are necessary for the long-term health of this vital sector."