It looks like the housing market is coming back, but there's still reason to be careful. In July, home resales had their highest monthly increase in at least a decade. The rush is driven in part by a tax credit that expires on November 30, 2009. The rate of sale grew 7.2%, ahead of expectations.

Last month, sales hit a seasonally adjusted annual rate of 5.24 million in July -- up from a 4.89 million in June. This is the fourth month in a row in which seasonally adjusted sales increased, and it was the strongest growth rate since August 2007. A Thomson Reuters survey had forecast 5 million, but the reality exceeded that.

The news for home sales continues to be bad, as last month's figures showed the worst drop in home sales in the last 18 years. That's almost two decades, folks. The prime reason? It's not that hard to guess (being slapped on every business magazine cover these days): the subprime lending market. As Michael Fowlkes reported on yesterday, the outlook for the housing market in the U.S. is not looking all that rosy for the near future.

Sales were well below what market economists had predicted for March. Those for existing homes fell 8.4% (an annual rate of 6.12 million from February's 6.68 million). That drop from a month-to-month period was the largest since 1989 according to the National Association of Realtors. In addition, sales of single-family homes were down 9.5% in March.

Is this a signal of anything? Sure it is. Greedy lenders are adjusting back to the reality of lending and buyers are not having such an easy time being approved with low credit scores and huge debt. My takeaway from all this is that chasing the easy money (short-term profits) can come back and bite you in the butt (big-time). I think many subprime lenders would be agreeing with that sentiment these days, yes?

As such, we know that the drop from February to March rests mainly on the tighter lending standards in the subprime mortgage sector, according to some real estate industry experts. As mortgages have reset recently and lenders have tightened up load standards as to not get stuck with loan defaults, that has made it a bit more difficult for buyers without excellent credit to get financing to buy a home. Add to that the possibility of potential home buyers being wary of a new home purchase and there's your March decline (and it's a doozy). The question is this -- what will April, May and June sales look like? How about all the way through the summer?