The pace of sales of pre-owned homes fell slightly in July but the inventory of unsold properties soared to the highest level in over 15 years as troubles in the subprime mortgage market continued to wreak havoc on the housing sector.

Home sales slid 0.2 percent in July to a seasonally adjusted 5.75 million unit annual rate, according to the National Association of Realtors.

That brought the supply of unsold homes at the current sales pace to 9.6 months' worth, the highest level on record since 1999, when the association began tracking all types of properties, such as condominiums, together with single-family homes.

The supply of single-family homes, the bulk of the inventory included in the association's data, rose to 9.2 months' worth, which was the biggest supply on hand for sale since October 1991.

This shows that the housing downturn continues to intensify. It shows no sign of abating. Given the turmoil in the financial market from lending problems, the housing problem will continue in the months ahead, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

Worries over the housing market coupled with high energy costs have eroded investor confidence, with the UBS/Gallup Index of investor confidence falling for the third straight month, bringing it down to the lowest reading in a year.

This sentiment also held true for a panel of key business economists who in a survey released on Monday concluded that the risk of massive defaults on subprime mortgages and heavy debts is a bigger threat to U.S. economic prosperity than terrorism.

The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the U.S. economy, the National Association for Business Economics said.

That panel's conclusion was based on a survey of 258 NABE members conducted between July 24 and August 14. In that survey, only 20 percent of members said terrorism was now their top concern, compared with 35 percent surveyed in March.

U.S. Treasury debt prices rose on Monday following the housing data but trading volume in Treasury securities was particularly thin due to a market holiday in London and with many U.S. players out on summer vacation.

U.S. stocks were down amid concerns housing market troubles would impact the economy and corporate profits. At midday, the benchmark Dow Jones Industrial Average was down more than 40 points, or 0.3 percent.

HOUSING IMPACT ON ECONOMY

Even with a somewhat dismal picture continuing on the housing front, National Association of Realtors economist Lawrence Yun maintained that this key segment of the U.S. economy is still holding on.

In the aggregate, we don't see the subprime market damaging the economy, Yun said.

Bob Moulton, president of the Americana Mortgage Group, a mortgage brokerage firm in Manhasset, New York, said there is still a steady stream of mortgage business.

We are still writing our fair share of business. We are still seeing transactions. We still see homeowners buying houses, Moulton said, noting that declining home prices will ultimately boost home sales.

According to the latest home sales data from the Realtors association, median home prices fell 0.6 percent from a year ago to $228,900.

Volatility creates transactions and with median home prices falling, it's great for first-time home buyers, Moulton said.

Last month's decline in existing home sales was smaller than expected. Economists polled ahead of the report forecast home resales to drop to a 5.70 million-unit pace.

(Additional reporting by Glenn Somerville in Washington and Richard Leong in New York)

Pennsylvania U.S.