The National Association of Realtors today reported gut-wrenching existing home sales figures, revealing the largest monthly decline since 1999. Sales fell to a seasonably adjusted annual rate of 5.04 million, an 8% drop from a year ago. Analysts predicted figures around 5.22 million.

Nationwide, sales of existing homes were down 19.1% in September compared to a year earlier, while inventories of unsold homes and condos rose to a 10.5-month supply. Existing home sales were hurting from California to the New York islands, with the Northeast hit hardest, falling 10%. Sales also scaled down 9.9% in the West, 7% in the Midwest, and 6% in the South.

In light of the numbers, Lehman Bros. stated it expects the Federal Reserve to cut the overnight lending rate to 3.75% by the middle of 2008.

As a result of the housing figures, on top of poor earnings from Merrill Lynch major indices suffered during intraday trading. The Dow Jones Industrial Average (DJIA-13,531.8) dropped more than 200 points earlier, but has since rallied slightly to lessen the deficit to around 140 points. The Dow is currently at 13,531.8. The S&P 500 (SPX- 1500.21) and Nasdaq Composite (COMP-2745.3) also suffered, with the SPX hovering near a 20 point loss and the COMP dawdling around a 2% loss.