A year ago, Manhattan homeowners lived within the firm grasp of the worst recession in 70 years. A skyrocketing real estate market seemed ready to come back to Earth, as carnage in the financial services industry – which spread to just about every other business – decimated incomes and net worths throughout the city.

From the second quarter to the third, this year, the sale of co-ops and apartments spiked between 46% and 69% according to several reports from the real estate business. Sales are still lower than last year, but the recovery has been nothing short of amazing (to the chagrin of those of us who had dreams of one day moving up from the rental class).

Prudential Douglas Elliman reported a price increase of almost 2% from the second quarter, though the median was down 8% to 18% from last year – to the $760,000 to $850,000 range. Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm, calls this good news, but cautions that it doesn't mean we're at the bottom.

The market seems to want to go up each day as it has relentlessly almost every trading session since April. But yesterday, it had a tiny setback after the FOMC announcement. Today the culprit was housing. The National Association of Realtors said existing home sales declined 2.7% in August. Every economist worth his salt said the number would rise.

Good news on the unemployment front did give the market an early boost this morning. Within an hour, though, bad news on the housing sales front wiped out the gains and moved the major indices into negative territory, where they have remained.

Here were today's unofficial closing numbers:

Dow 9,706.99 -41.56 (-0.43%)
S&P 500 1,050.78 -10.09 (-0.95%)
Nasdaq 2,107.61 -23.81 (-1.12%)

According to the National Association of Realtors (NAR), sales of pre-owned homes increased 5.1% in February -- bringing the seasonally adjusted annual rate to 4.72 million units in February. The NAR attributed the growth to "deep price discounts." The percentage gain was the largest since July 2003, but sales are still down 4.6% during the past 52 weeks.

A survey by MarketWatch showed expectations for a decline to 4.45 million from January's 4.49 million rate. In the past year, the median sales price for homes fell 15.5% to $165,400 -- logging the second largest year-over-year price drop ever. The largest year-over-year price drop logged was January's drop of 17.5%. The inventory of unsold homes increased 5.2% to 3.80 million, which is a 9.7-month supply at February's sales pace. More often than not, inventories increase 5% in February -- but such data is not adjusted for seasonality.

We all know that the real estate market is in trouble, and another sign of just how bad things are came out today as the National Association of Realtors announced another steep drop in home prices during the fourth quarter.

The NAR started keeping comprehensive data on home sales back in 1979, and in that time period there has not been another quarter that saw home prices drop as much as they did in the fourth quarter of last year. So just how much did values drop? A massive 12.4%.

Pending sales of existing homes in April 2008 rose 6.3%, to a seasonally-adjusted annualized rate of 4.89 million, the National Association of Realtors announced Monday. A pending sale is one in which a contract was signed on an existing home, but not yet closed.

Economists surveyed by Bloomberg News had expected April pending home sales to fall 0.4%. The NAR said its pending home sales index rose 6.3% to 88.2, its highest level in six months. The pending homes sales index fell in March and February.

However, even with Monday's surprising April statistic, pending home sales are still down 13% from April 2007.

Economist Peter Dawson said home buyers / sellers should not conclude that the U.S. housing market is in recovery "until both sales and median prices rise for several consecutive months" across the United States.

Pending home sales varied by region. Sales rose 13% in the Midwest, 8.3% in the West, and 4.6% in South; sales fell 1.9% in the Northeast.

Economic Analysis: A surprisingly positive April existing home sales report. Still, as economist Dawson outlined, economists underscore that one shouldn't read too much into one monthly statistic, given it's a short snapshot of housing conditions, and due to likely revisions. One should also evaluate the April number in the context of the long and wide U.S. housing downtrend: sales had fallen so low that any uptick would register an increase, and that may very well have been the case in April, particularly if the existing home segment registers decreases for May, June, July, and August -- prime selling / family relocation months in the United States.

Fannie Mae doesn't expect the housing market to rebound until after 2008, according to an interview Chief Executive Daniel Mudd gave to Bloomberg News in which he offered a far bleaker assessement than the National Association of Realtors, which expects a rebound in the first quarter of next year.

"We don't think we hit a bottom until the end of '08 and then we have some period of time to work our way back up again,'' he told Bloomberg, adding that he expects U.S. home prices to fall 2 percent to 4 percent this year and even more next year.

Wow.

Does this give Ben Bernanke cover to cut interest rates a second time or even a third? Does this mean that the government is going to need to do more to help homeowners?

Stay tuned.

According to the The National Association of Realtors the current housing slump is only going to get worse. The NAR came out and lowered their forecast for home sales today, the ninth time this year it has done so.

The group stated today that it is now expecting to see a 8.6 percent drop in existing home sales. Its previous estimate, made last month, was that 2007 would witness a 6.8 percent decline. It is also predicting that the decline is not going to end anytime soon, and that we should expect to see further decay in the housing market into 2008.

New home sales are also going through rough times this year, and the NAR is predicting that 2007 will end with a 24 percent decline in sales. This follows a tough 2006 which saw new home sales fall off by 18 percent. It is now expecting that new home sales are not going to hit bottom until sometime in the first quarter of next year, not the end of this year as it had previously estimated.

The forecast that prices will start to climb again next year is not being universally accepted by industry analysts. Alex Barron, an analyst with Agency Trading Group Inc. thinks the group is being a bit optimistic in its 2008 forecast. Mr. Barron has stated that "you have to wonder what the NAR is thinking," and that "we're going to see a drop in volume and prices.''

Let's hope that the NAR is right, and there is a turnaround coming in the not too distant future for the struggling housing market.

[Thanks to D'Arcy Norman for the photo]

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

A recent study showed that home sales fell in 41 different states during the April to June period. According to the National Association of Realtors, one-third of the metropolitan areas that the group follows saw lower home prices as well during the quarter.

This really should not be too surprising to our readers. Not only have we covered the weak real estate market pretty extensively, every news media out there has been pushing the news in front of its readers over the past several months. Yes, last year there was still some debate as to whether or not a housing crunch was coming, but even the die hards who said the housing bubble would never burst have been forced to admit the troubles the sector has been seeing lately.

But even myself, someone who has been bearish on housing for the past couple years, is seeing some signs that we may be about to see things turn around. Don't get me wrong, I still see some more downside lasting through the end of this year, but I think things are, at least minimally, starting to balance out.

It is like everything else in the world (except maybe Berkshire Hathaway (NYSE: BRK.A) which seems to defy gravity), what goes up must come down, and housing was no different. Low interest rates fueled one heck of a housing boom, so strong of a boom, that a burst was, in my mind, inevitable. And that is exactly what was happened. But is this really a bad thing?

Countrywide Financial (NYSE: CFC) CEO Angelo Mozillo, who spooked the stock market when he delayed his forecast for a housing market recovery until 2009, has been one of the most realistic executives in the housing industry. However, his downbeat assessment still may be overly optimistic.

If housing prices were inflated by a credit bubble as some have indicated, it will not be easily resolved. Indeed, data released today from the National Association of Realtors shows the pace of existing home sales fell to a four-and-a-half year low while new mortgage applications hit their lowest level since February.

Under one scenario, if there is a major shock to the credit markets and the economy, the number of defaults could skyrocket. Home prices could recover in 2009 but from a much lower level. This is what occurred in the Great Depression. However, people usually don't abandon their homes if they can avoid it. With unemployment rates at near record lows and Fed Chairman Ben Bernanke keenly aware of the situation and ready to react, I don't think this scenario is likely.

The other scenario involves a slow re-adjustment back to the long-term averages. Home prices may drop minimally on annual basis for the next five to ten years until we return to reality. People will find that in ten years their home will be worth approximately what they paid today. The home will be a dead asset as opposed to an investment vehicle for long-term appreciation.

Some predict that either scenario will be devastating to the stock market. The first scenario would definitely fit this prediction. However, the second more likely scenario may not. In the late 1980's and early 1990's, we experienced a similar problem with Savings and Loans related to junk bonds. However, the problem acted as overhang to long-term economic growth but did not usher in a secular bear market. There were brief but terrifying downturns in 1987, 1990, and 1994. However, the market continued to rise.

With this announcement the housing market moves one step closer to painful reality. However, do not extend this analysis further than is warranted by the facts and data.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices.

When the New York-based Conference Board's index of consumer confidence numbers were released today it really should not have come as a surprise that the numbers were down. The housing market and consumer confidence often go hand-in-hand, and with the troubles the housing market has been going through, it seems only logical that Americans consumer confidence would be a bit wary.

The index reported today that during May consumer confidence fell slightly over 4.2% from April, down to 103.9. This was lower than analysts had been expecting confidence to fall, with estimates having been for a drop down to 105 during the month.

There were 3 more ominous signs for the housing market again today:

1. Homebuilder Lennar Corp. (NYSE: LEN) posted a loss for its second quarter,
2. S&P/Case-Shiller indicated that home prices in 20 cities fell by the largest amount in 6 years. (view last months S&P/Shiller report)
   
3. Commerce Department reported that purchases of new homes fell 1.6 percent last month.

According to The National Association of Realtors, existing home sales fell again during May to the lowest level in the past four years. This news should really come as no surprise as the sub-prime mortgage problems continue to weigh down the ailing housing market.

As the number of existing home sales falls, so does the average price for homes in the market. Last month was the 10th straight month of falling home prices, and there really is no sign that this trend is likely to reverse any time soon. So, on the bright side, for all of you looking to buy a new house, the home of your dreams is getting more and more affordable each passing month.

The average price for an existing home across America is now only $223,700. This represents a 2.1% drop from last year.

A few years back it was definitely a sellers market, with prices shooting through the roof. Those days are gone. It has been a long time since I heard any of my friends bragging about how much money they just made flipping their most recent home purchase.

We see some more weakness in the housing market again today, indicating that the rough times are still not close to coming to an end anytime soon. The National Association of Realtors announced today that existing home sales fell by more than expected during the month of April.

According to today's report, existing home sales fell by 2.6%, which puts us at the lowest annual sales rate in the last four years at 5.99 million units. In reaction to the fall in home sales, we are also given data that the average price for home sales dropped in the month. This represents the ninth straight month that home prices have dropped.

Earlier this month I wrote about a release from the NAR that predicted that 2007 had the possibility of being the first year in history to show a drop in home prices. I would have to agree that we are well on our way for the first annual drop in prices. The current nine month streak of falling prices is the longest streak in history and right now no one is expecting to see this trend reverse in the near future.

April's median home price fell to $220,900 which is down 0.8% from the same month last year. According to the report earlier this month from the NAR, they are expecting that the average price for homes sold to fall down to $219,800 by the close of this year.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor'sObserver.

It seems like every day we are hearing more and more ominous news out of the housing industry. It wasn't that long ago that the practice of flipping real estate for a quick buck was not only widespread, but also had a very high probability for success. Not any longer, and today the National Association of Realtors said that for the first time in their history of tracking home values, 2007 will probably see a drop in home prices.

According to the NAR home prices will more than likely see a drop of around 1% this year. To put that into a dollar figure, that would put the average for an existing single family home at $219,800. This really shouldn't come as a surprise to any of our readers. Back on April 24, we took a look at March sales, and noticed that March represented the 8th straight month of falling home prices. The current 8 month streak represents the longest stretch ever for falling prices, so seeing an overall drop for all of 2007 really shouldn't shock any of us.

If we try hard enough, I am sure we can all remember the glory days a couple years ago. It seemed like every other week I was hearing someone telling me about the $40 or $50,000 they had just made flipping their house. This just is not something you would even dream of hearing in today's world.

Lawrence Yun, a senior economist for NAR, said speculative real estate investors have completely left the market. These were the guys responsible for pushing prices higher and higher, and without them in there to keep the prices propped up, we are quickly seeing the market fall apart.

Should homeowners freak out and consider their homes a losing investment? Am I suggesting people avoid buying a home? Not at all.

In the long run home ownership will continue to be a good way to create income, but things are going back to the way they used to be, real estate is once again turning into a long term investment, you just have to remember to treat it like one.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor'sObserver.