VANCOUVER, British Columbia, Canada - July 21, 2011 - Sales of previously owned U.S. homes hit a seven-month low in June as demand for condominiums fell and contract cancellations surged, dampening hopes the distressed housing market was starting to improve.

The National Association of Realtors said Wednesday sales fell 0.8% last month from May to an annual rate of 4.77 million units, the lowest since November and a third straight monthly fall.

Economists had expected sales to rise to a 4.90 million-unit pace.

The drop in sales was surprising given that pending home sales contracts rebounded in May. On Tuesday, a report showed home construction in June jumped to a six-month high.

Pending home sales are drawn from a small sample and become actual sales with a lag of a month or two.

Contract cancellations were the chief driver behind June's drop in sales, the group said, though it could not give a specific reason. However, it noted the sluggish economy, especially the weak labor market and tight lending conditions.

"Buyers and sellers are increasingly running up against conservative appraisals, which often cause deals to fall through or be delayed," said Mark Vitner, senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Canceled contracts rose to a 16% rate from 4% in May. That was the highest since the Realtors started tracking cancellations last year and was well above the usual rate of 9-10%.