U.S. existing-home sales climbed in July, rising more than expected, but inventories expanded and prices kept dropping.

Home resales rose to a 5 million annual rate, a 3.1% increase from June’s revised 4.85 million annual pace, the U.S. National Association of Realtors said today. June originally was seen slipping 2.6% to 4.86 million.

Wall Street had expectations of a 4.92 million sales rate for previously owned homes. The sales level was the highest since 5.03 million in February.

The median home price was US$212,400 in July, down 7.1% from US$228,600 in July 2007. The median price in June this year was US$215,100.

Despite the sales increase, inventories of homes rose 3.9% at the end of July to a record-high 4.67 million available for sale, which represented an 11.2-month supply at the current sales pace. There was an 11.1-month supply at the end of June.

“Inventories continue to remain high, which means we are in a buyers’ market,” NAR economist Lawrence Yun said in a release. “Builders need to continue to cut production more.

“We expect more balanced conditions in 2009 and will eventually return to normal long-term appreciation patterns,” Yun said.

Sales rose 5.9% in the Northeast, 0.9% in the Midwest, and 9.7% in the West. Sales fell 0.5% in the South.