Existing home sales in the U.S. dropped in October after two months of strong increases, the National Association of Realtors said in a statement.

Sales of homes including single-family, townhouses, condominiums and co-ops, fell 2.2 percent to 4.43 million in October from 4.53 million in September.

The housing market, which has been hit hard by the economic recession, slumped sharply after the homebuyer tax credit expired in April. Though sales recovered since then, the recovery has remained uneven and uncertain.

The decline suggests that the housing recovery has stalled even before it really got going, Paul Dales, an economist at Capital Economics, said in a note.

Some of the decline could be due to last month's freezing of foreclosure activity by some major banks, Dales added.

Several major banks in the U.S. froze foreclosures in October as they attempted to investigate potential problems with documentation related to the foreclosure process.

Some deals may have fallen through as banks pulled their foreclosed inventory from the market. Now that the bulk of foreclosure activity has resumed, sales may bounce back in November, Dales said.

Distressed homes account for 34 percent of sales in October, compared with 35 percent of sales in the previous month. The national median existing-home price for all housing types was $170,500 in October, down 0.9 percent from last year.

We'll likely see some impact from the foreclosure moratorium in the months ahead, but overly tight credit is making it difficult for some creditworthy borrowers to qualify for a mortgage, Ron Phipps, NAR President, said in the statement.

Based on the job market and affordability conditions, sales should steadily improve to healthier levels of above 5 million by spring next year, Lawrence Yun, the chief economist at NAR, said.

Concerns regarding high unemployment, low consumer confidence and the threat of deflation continue to plague the U.S. economy. The U.S. Federal Reserve announced a second round of quantitative easing earlier in November, a move that was criticized by many countries across the world and some Americans.

The QE2 has weakened the U.S. dollar further, while the actual impact of the $600 billion package remains ambiguous.

Consumers are still wary about making heavy investments, such as houses, as their financial and job situation remains uncertain.

Earlier today, the U.S. reported the economy grew at an annual rate of 2.5 percent in the third quarter, according to the second estimate, pushed higher partly due to a drop in imports. Core personal consumption rose only 0.8 percent, consistent with low inflation and allows the Fed to pursue its quantitative easing, Wells Fargo Capital said in a note.

Consumer spending, along with the housing market, are two important factors for economic growth.

Real personal consumption expenditure was higher in the third quarter at 2.8 percent, the largest rise in consumption since the first quarter of 2006, suggesting that household spending maybe gaining some traction, Dales stated.

Despite the decline to 10.5 in October, from 10.6, the months' supply of unsold homes remains well above the 6-7 months that's broadly consistent with stable prices. That supports our view that prices will continue to edge lower for at least the next 12 months, Dales said.

Overall, these figures suggest that the housing market will not be able to contribute to the overall economic recovery, he added.