Amid the flurry of banking bailout talks and stock market worries, the National Association of Realtors released a report Wednesday showing a decrease in existing home sales nationally last month.

The Associated found that sales of previously owned homes, including single-family, townhomes, condominiums and co-ops, dropped a seasonally adjusted 2.2 percent to an annual rate of 4.91 million units from a rate of 5.02 million in July. August figures are also down 10.7 percent from the same time last year.

The national median price for existing homes also fell last month to $203,100, a 9.5 percent slide from August 2007 when the median price was $224,400.

“The median home price reflects more transactions related to subprime loans,” said NAR chief economist Lawrence Yun. “Fewer than 10 percent of homeowners have subprime loans, but these mortgages are accounting for a disproportionately high share of sales in the current market. On the other hand, areas that have had sharp price cuts are seeing a turnaround in sales, which are rising very fast now in parts of California, Florida and Nevada.”

Yet home sales were still down in the West, falling 5.3 percent in August from July.“The highest concentration of foreclosures is in the West, which is weighing down the median price because many buyers are taking advantage of deeply discounted prices,” Yun said.

The Northeast saw a 6.6 percent decline in sales during the past month, while the Midwest and South experienced gains of 0.9 percent and 0.5 percent, respectively.

The main reason for sagging sales, according to NAR President Richard F. Gaylord, was the lack of mortgage financing. “The difficulty in obtaining a mortgage increased over past couple months, making it more challenging for creditworthy borrowers to find financing,” he said. “Our hope is that overly tight lending criteria can be loosened with reasonable standards and credit so that sales activity can catch up with demand. Interest rates have already declined, but there is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding.

“We urge Congress to restore access to sound mortgage credit so people have the ability to make and keep a long-term investment in the American dream of homeownership. Congress needs to take care of Main Street and not just bail out Wall Street.”

One bright spot in the NAR report was that inventory dropped by 7.0 percent during the same time to 4.26 million existing homes, representing some hope that the market is slowly balancing out.

Mortgage giant Freddie Mac reported Thursday that interest rates on 30-year fixed rate mortgages made their largest week-to-week decrease this week in almost 28 years , falling 0.42 percentage point.

On news of the Federal Government’s bailout of Freddie Mac and sister corporation Fannie Mae, the national average rate dropped to a five-month low of 5.93 percent, with an average 0.7 discount point, during the week ended Sept. 11 from 6.35 percent the previous week and from 6.31 percent on year earlier.

“Interest rates for 30-year fixed-rate mortgages are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks,” said Frank Nothaft, Freddie Mac’s vice president and chief economist. “This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago.”

Fifteen-year fixed rate home loans also experienced an interest rate decrease to 5.54 percent from 5.90 percent last week. One year ago, the average rate was 5.97 percent.  Rates on one-year adjustable rate mortgages (ARMs) rose in the latest week, however, to 5.21percent, from 5.15 percent. Last year at this time the average was 5.66 percent.

Another report released Thursday showed that America’s riskiest home buyers are largely being shut out of the mortgage market. The Federal Reserve’s Home Mortgage Disclosure Act report revealed that as mortgage delinquencies and failures rose in 2007, home loan financing for sub-prime or poor credit borrowers decreased dramatically.

“One consequence of deteriorating loan performance and widespread declines in home values was a sharp contraction in 2007 in the willingness of lenders and investors to offer loans to higher-risk borrowers or, in some cases to offer to certain loan products that entailed features associated with elevated credit risk,” the Federal Financial Institutions Examination Council said in the report.

Total mortgage applications last year fell to 21.4 million, down 22 percent from 2006, and loan originations slipped to 10.4 million in 2007, a decrease of 25 percent from the previous year.

The riskiest of loans were also by and large taken off the market. Undocumented income loans fell 69 percent from 2006, a sign that lenders had been badly burned by mass failure of these “liar loans.”

These trends have certainly continued into 2008, with analysts expecting little change in strict mortgage requirements and home loan credit availability through the end of next year.

Even in the face of rising inflation, the Federal Reserve is unlikely to raise their target interest rate through the end of 2008, based on comments Friday from Fed Chairman Ben Bernanke.

“The Federal Open Market Committee (FOMC) has maintained a relatively low target for the federal funds rate despite an increase in inflationary pressures,” Bernanke said in a speech at the annual economic symposium in Jackson Hole, Wyoming. He explained that this strategy is based on the Fed’s expectation “that the prices of oil and other commodities would ultimately stabilize… and that this outcome…would foster a return to price stability in the medium run.”

Bernanke went on to say that he is encouraged by the “recent decline in commodity prices, as well as the increased stability of the dollar,” and that,  if the Fed does not interfere by increasing its interest rate, these conditions would lead to a better pace of inflation by the beginning of next year.

During the past year, the Federal Reserve has decreased its federal funds rate from 5.25 percent to 2 percent, in response to meltdowns in the financial and mortgage markets. Yet because of lower interest rates as well as soaring oil and food prices, consumer inflation has risen from 2 percent to a rate of 5.6 percent during the same period.

In order to get inflation under control, some on the Fed board say an increase in the target rate is the only solution. “If we don’t reverse our accommodative stance sooner rather than later, we will face rising inflation, which may be costly to deal with,” Philadelphia Federal Reserve Charles Plosser said in an interview published  Monday in the New York Times.

Still others support Bernanke’s position, saying that most economic players, particularly mortgage lenders and bankers, are not ready for a rate hike. Janet Yellen, president of the San Francisco Fed argued, “Lenders have been hit by a shock so severe that they are contracting and withdrawing from private sector lending.”

The FOMC meets again in mid-September to determine if any interest rate changes are necessary.