The pace of sales of existing home in the United States fell 5.3 percent in January to a 4.49 million-unit annual rate, while home prices dropped to a six-year low and inventories shrank, the National Association of Realtors said on Wednesday.

Economists polled by Reuters were expecting home resales to rise to a 4.79 million-unit pace from the 4.74 million rate for December.

The inventory of existing homes for sale fell 2.7 percent to 3.60 million from the 3.70 million overstock reported in December.

The median national home price declined 14.8 percent from a year ago to $170,300, the lowest since a $169,400 level seen in March 2003.

Roughly two in five home sales are 'distress' transactions where the mortgage company must erase some of the original loan amount in order to complete the sale, said the trade association's chief economist Lawrence Yun.

We are seeing worsening economic conditions - loss of housing wealth and in the stock market... Very low confidence, Yun said.

The Realtors said they expect a recent federal stimulus package and other rescue measures to spur 900,000 home sales this year. Still, some economists don't expect Washington's encouragement or the home-price slide to quickly restore the confidence of prospective buyers.

Home prices are continuing to slide. They're down 14.8 percent over the past year. That makes housing very affordable relative to income, but buyers are still holding back, said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri. We probably need to see a little more confidence in the economy to get buyers back into the housing market and that's just not happening yet.

(Reporting by Patrick Rucker and Ellen Freilich in New York, Editing by Chizu Nomiyama)