WASHINGTON (Reuters) -U.S. existing home sales fell more than expected in June, suggesting the housing market slump could be deepening as higher mortgage rates and economic uncertainty keep potential buyers on the sidelines.

Home sales dropped 2.7% last month to a seasonally adjusted annual rate of 3.93 million units, the National Association of Realtors said on Wednesday. Economists polled by Reuters had forecast home resales would slip to a rate of 4.00 million units. Sales were unchanged on a year-over-year basis in June.

"High mortgage rates are causing home sales to remain stuck at cyclical lows," said Lawrence Yun, the NAR's chief economist. 

"If the average mortgage rates were to decline to 6%, our scenario analysis suggests an additional 160,000 renters becoming first-time homeowners and elevated sales activity from existing homeowners."

Government data last week showed single-family homebuilding dropped to an 11-month low in June while permits for future construction declined to more than a two-year low. 

The average rate on the popular 30-year fixed-rate mortgage has hovered just under 7% this year after the Federal Reserve paused its interest rate cuts amid concerns that President Donald Trump's protectionist trade policy would stoke inflation.

Trump, who has railed against Fed Chair Jerome Powell for not lowering borrowing costs, said on Tuesday "people aren't able to buy a house because this guy is a numbskull. He keeps the rates too high, and is probably doing it for political reasons."

The U.S. central bank is expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range at the conclusion of its policy meeting next week. The Fed cut rates three times in 2024, with the last move coming in December.

Economists expect residential investment, which includes home sales through broker commissions, likely remained a drag on gross domestic product in the second quarter. 

Though housing accounts for less than 5% of GDP, it has a bigger economic footprint through purchases of furniture and appliances and other activity. There are concerns a prolonged decline could spill into the broader economy.

Weak sales, especially in the Washington, D.C. metro area, which has been the area hardest hit by the Trump administration's deep spending cuts and mass firings of federal government workers, have increased housing supply.

That development has slowed the pace of house price growth, with knock-on effects on household wealth that could hamper consumer spending.

The inventory of existing homes in June increased 15.9% to 1.53 million units from a year ago. The median existing home price last month increased 2% from a year earlier to a record high of $435,300. 

At June's sales pace, it would take 4.7 months to exhaust the current inventory of existing homes, up from 4.0 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.

Properties typically stayed on the market for 27 days last month, compared to 22 days a year ago.

First-time buyers accounted for 30% of sales, up from 29% a year ago. Economists and realtors say a 40% share is needed for a robust housing market. 

All-cash sales constituted 29% of transactions, up from 28% a year ago. Distressed sales, including foreclosures, made up 3% of transactions, edging up from 2% a year ago.