Sales of previously owned American homes fell more than forecast last month to the lowest level since March 2004, evidence of the end of a fiveyear housing boom that will slow the economy.

Purchases declined 5.7% to a 6.6 million annual rate from November’s 7 million, the National Association of Realtors said today in Washington. Sales, which have been slowing from the record monthly pace reached in June, still finished 2005 at an all-time high.

While economists forecast a gradual decline in sales, December’s slump raises the risk the slowdown could accelerate and become an even bigger drag on the economy this year.The drop puts Federal Reserve policy makers on notice that more interest rate increases may not be necessary, according to Christopher Low.

“Higher rates at this point risk turning the gentle decline of the second half of 2005 into a housing rout in 2006,” said Mr. Low, chief economist at FTN Financial in New York. Recent housing reports “make the most compelling argument for the Fed to stop raising the overnight rate.”

A rise in the supply of homes relative to sales, less home price appreciation and higher mortgage rates may also limit refinancing, which has been helping drive spending and economic growth, economists said.

Shares of home-improvement retailers including Home Depot Incorporated and homebuilders D.R. Horton Incorporated, Centex Corporation, and Pulte Homes Incorporated declined.