* U.S. existing home sales drop 1 percent in December
* Richmond Fed factory index falls to minus 12
By Jason Lange
WASHINGTON, Jan 22 (Reuters) - U.S. home resales unexpectedly fell in December, but the drop was not large enough to suggest the recovery in the housing sector is running out of steam.
The National Association of Realtors said on Tuesday that existing home sales dropped 1 percent last month to a seasonally adjusted annual rate of 4.94 million units.
That was still the second-highest rate of sales since November 2009, when sales were lifted by a federal tax credit for home buyers, and the data pointed to momentum in the housing market.
"The outlook for housing is better this year than last year," said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.
The U.S. housing market tanked on the eve of the 2007-09 recession and has yet to fully recover, but steady job creation helped the housing sector last year, when it likely added to economic growth for the first time since 2005.
This year, housing is expected to be one of the economy's brighter spots, helping counteract some of the drag on economic growth from higher taxes that kicked in this month.
Still, the housing sector remains a shadow of its former self and many Americans are holding back from putting homes on the market because they owe more on their mortgages than their homes are worth.
The tight supply appears to be pushing housing prices higher, which could prove worrisome if prices rise at a faster pace than incomes, shutting buyers out of the market.
"There is still reason for caution with the housing sector," said Gary Shilling, an economic consultant in Springfield, New Jersey.
In December, the inventory of existing homes for sale fell 8.5 percent from November to 1.82 million, the lowest since January 2001. At the current pace of sales of existing homes, inventories would be exhausted in 4.4 months, the lowest rate since May 2005.
Nationwide, the median price for a home resale was $180,800 in December, up 11.5 percent from a year earlier.
A rise in home building could help meet growing demand in the broader market for homes this year. The government said last week groundbreaking on new homes increased in December.
The softer pace of resales was below the median forecast in a Reuters poll for a 5.1-million-unit gain. U.S. Treasuries pared price losses and stock prices were little changed.
Distressed home sales fell to 24 percent of total sales in December from 32 percent a year ago.
The share of distressed sales, which also include those where the sales price was below the amount owed on the home, was up from 22 percent in November.
A separate report showed factory activity in parts of the U.S. mid-Atlantic and South contracted in January, with the Richmond Federal Reserve bank's index of activity dropping to minus 12 from 5 in December.