The housing market is schizophrenic. Yesterday, existing home sales surged to their highest level in nearly three years.

Today, the Commerce Department reported that new home sales plunged to a seven-month low. The drop was a whopping 11.3%, the biggest decline since January, to 355,000 units.

There is a bit of good news in that the median price of new homes rose by 3.8% to $217,400.

Now this is a real surprise, the good kind.New home sales surged 11% in the past month, to a seasonally adjusted rate of 384,000, according to the Wall Street Journal(subscription required).

The Commerce Department reported that year over year, sales are still down 21.3%. The median price was $206,000 in June, down 12% from $234,000 in June 2008.

Sales of new homes fell by 37.8 percent from 2007 sales. Total sales in 2008 were 482,000 compared to 776,000 (the total sold in 2007), according to Mission Residential. The median new home price dropped by 9.3 on a a year-over-year basis.

These numbers may actually be skewed higher because the monthly sales data does not reflect cancellations, which means sales are probably lower and actual inventories higher. Because of these adjustments the actual supply on the market jumped to 12.9 months in December. Don't expect home builder stocks to recover any time soon.

Several major pieces of economic news were released this morning, and all were good. Personal Spending rose more than expected, the fastest growth in two years. The Chicago PMI report rose more than expected as well. The Michigan Consumer Sentiment report seemed to hold its own. In addition, the core inflation number came in within the Fed's target range.

This is a major contrast to the numbers earlier in the week. Durable Goods and Consumer Confidence reports were terrible, and both Existing and New Home Sales indicated that there appears to be no end in sight for the housing slump. The only good number was Second-Quarter GDP. However, this was prior to the turmoil created in the markets by the credit crisis.

Then, why did the stock market rally on the bad news and is going down today on these positive economic reports? It's the liquidity. The stock market is driven by money and credit. As there is greater availability and lower cost, the market performs better. Who is the ultimate gatekeeper for this? You guessed it: the Federal Reserve.