The National Association of Realtors reported a 3.1 percent increase in sales of existing homes in July to an annual pace of 5 million units compared to June’s sales of 4.85 million units.

However, the inventory of homes for sale hit an all-time high, the latest indication that the housing slump is far from over. Despite the third monthly sales increase this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.

That represented a 11.2-month supply at the July sales pace, matching the all-time high set in April.

Until the inventory level is reduced to more normal levels, analysts say, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.

Prices nationwide are not expected to hit bottom until early next year. Prices went down significantly while home sales were about 13 percent lower than a year ago. The median price for a home sold in July dropped to $212,000, down by 7.1 percent from a year ago.

Between 33 and 40 percent of sales activity is coming from foreclosures or other distressed properties, estimated Lawrence Yun, chief economist at the Realtors group.

"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.

One key unknown for the U.S. housing market is the future ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have dramatically cut back the availability of mortgages as they cope with mounting losses from foreclosures.