Chances are, if you follow the economy at all, there are two things on your mind, oil and housing. Despite a couple days in a row of oil selling off, it seems like high oil prices are here to stay for a while. And housing continues to remain weak, with signs pointing to more weakness in the months to come.

I am sure you are as sick of hearing about homes sales as I am, but unfortunately it is something we have to look think about, and today we get more bad news, as the National Association of Realtors announced that May was yet another tough month for pending home sales. In fact, with a reported 4.7% drop in pending home sales, May was the third lowest month on record, a sign that tough times are still here, and probably going to be sticking around for a while longer.

First, let's get a better idea of what exactly we are talking about here. What are pending home sales? Simply put, a home sale is pending when there has been an offer made and accepted, but the deal has not yet closed. The lag between the acceptance and the closing is typically one to two months. The index to track this was started back in 2001, so to get to a 100 rating, you would have to have the average level of sales activity that we were seeing back in 2001.

Sales of existing homes in April 2008 fell 1.0%, to a seasonally-adjusted annualized rate of 4.89 million, the National Association of Realtors announced Friday, as inventories of homes swelled to a 23-year high.

Economists surveyed by Bloomberg News had expected April 2008 existing home sales to total a 4.85-million annualized rate. The March 2008 sales rate was revised higher to a 4.94-million annualized rate.

Even more telling, inventories -- unsold homes and condominiums -- rose to an 11.2-month supply at the current sales rate. A typical, healthy housing market has a three to four month supply of unsold homes on the market.

Further, the inventory of single family homes rose to 10.7-month supply - - its highest level since 1985. Meanwhile, the inventory of condominiums increased to a 14.2-month supply.

Also, the median sales price for houses and condominiums fell to $202,300 in April 2008, an 8% decrease from the $219,900 median recorded a year ago.

The housing market can use all the good news it can get, and the latest news out of Southern California is definitely good, as home sales in the month of April reportedly jumped 22% in that part of the state.

California has been hit pretty hard in the recent housing crunch. Of course, the reason why California has been so hard hit is because it was also one of the states that had the best growth during the housing boom.

The flip side of the story is that the rise in home sales was mostly led by bargain hunters who swooped into the market and picked up foreclosed properties. According to the report, 38% of the homes purchased last month had been involved in foreclosure procedures at some point over the past year.

April saw a 65% increase in foreclosures from the same month a year ago.

The numbers pretty much speak for themselves, with 243,353 receiving notices in April. This is a vast increase from April 2007, when "only" 147,708 homes received the same notice. This was also a 4% increase from March. The numbers are based on a report from RealtyTrac Inc.

Homeowners in California and Florida are among the hardest hit. The two states had 9 metropolitan areas that ranked in the top ten areas of the country in terms of foreclosures.

Regional home loan banks will be allowed to boost holdings of mortgage-backed securities by more than $100 billion, federal regulators announced Monday, (pdf) in still another effort to both increase liquidity to and stabilize the mortgage market.

The decision by the Federal Housing Finance Board enables banks in the Federal Home Loan Bank system to increase their holdings of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) securities. The FHFB said it will let banks use their existing capital to increase their holdings of agency mortgage-backed securities for two years. The purchases are restricted to securities guaranteed by Fannie Mae and Freddie Mac.

The move comes one week after the regulator for Fannie Mae and Freddie Mac eased capital requirements for the two home mortgage purchasers, enabling them to add another $200 billion into the mortgage market.

Further, while the overall combined capital infusion amount, about $350 billion, represents a fraction of the $4.5 trillion in mortgage backed securities backed by Fannie Mae and Freddie Mac, economists generally agree the money represents a non-insignificant piece of the housing recovery puzzle.

Housing Sector Analysis: Another positive data point for the U.S. housing sector, which brings the total positive data points this Monday to two, a record of late for the beleaguered sector. The additional capital amount is small, in market terms, but every additional capital amount, or investor, helps, to use a cliché. Still, investors (and homebuyers) should keep in mind that the nation faces at least another two quarters of housing sector consolidation, with a 9.6-month supply of existing homes for sale documenting that reality. Until inventory levels drop for several months in a row, economists and analysts will be reluctant to make bolder statements about the housing sector's health.

Home prices fell in a record number of U.S. metropolitan areas in Q4 2007, the National Association of Realtors announced Thursday, in a statement.

Prices fell in 77 of 150 metropolitan areas tracked, the most since the NAR start tracking values in 1979. Moreover, 16 metro areas recorded declines of 10% or higher.

U.S. median home price declines

Meanwhile, on a year-over-year basis, the U.S. median home price also declined 5.8% in Q4 2007 to $206,200 compared to $219,000 in Q4 2006. Even more telling, home prices have declined more than 10% since their July 2006 peak.

The metropolitan area with the biggest decrease was Lansing- East Lansing, Michigan, which recorded a 19% decline. Prices fell 18.5% in the Sacramento, California region and 17% in Riverside and San Bernardino, California, and in the Jackson, Mississippi, region, the NAR announced.

Home prices fell in every region. The regional totals: West, down 8.7% to $324,100; Northeast, down 4.8% to $261,700; South, down 8.7% to $171,700; and the Midwest, down 3.2% to $156,300.

Luxury homebuilder Toll Brothers Inc. (NYSE: TOL) stated that it was still looking for the light at the end of the tunnel when it reported preliminary first quarter earnings, which marked the seventh straight quarter of declining revenues.

During the quarter, the company had a 22% drop in revenues from the same period last year. The company is getting hit from a couple of different angles including falling home prices. On top of that, the average number of canceled home orders has also been on the rise. Finally, the company reported that the number of signed contracts dropped 46% from the same period last year.

Across the nation, Toll is seeing weak conditions in most areas, and expects the current challenges to continue for some time. The company compared the current situation to that of the Titanic, "things don't turn on a dime". Interesting comparison for the company. When companies start to compare their industry to the fate of the Titanic, you really have to start to wonder just how bad things have gotten, or are about to get. It definitely doesn't paint a pretty picture if you ask me.

Shares of the stock are down about 1% this morning in the premarket. The company is due to report complete first quarter numbers on February 27.

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

After months and months of dreary news from the worlds of housing and real estate, here's a bit of a pick-me-up: applications for mortgages rose 32.2% during the week of January 4, which was shortened by the New Year's holiday. This was a welcome change, as demand had been heading lower for the three previous weeks.

The Mortgage Bankers Association said in its weekly findings that its overall application index rose to 706 from 533.9 the previous week. Holiday-season volatility could be partially responsible for this jump -- in the week surrounding New Year's Day 2007, the application index was 16.6% higher.

Refinance volume spiked 53.9% during the week, while purchase activity was up 14.7%. Refinance applications accounted for 57.7% of total applications, up from 50.9% the previous week. (With all the speculation surrounding future rate cuts, wouldn't homeowners want to wait and see what happens at the next Federal Open Market Committee meeting in two-plus weeks?)

For the first time in the last 13 years, new home prices marked a quarterly decline during the third quarter. In news that is sure to raise more concerns over the troubling housing market, a new government report showed that new home prices dipped by 0.4 percent between July and September.

While prices fell in the quarter, they were still slightly higher from the third quarter last year. When compared to the same period last year, prices were only 1.8 percent higher. This is the smallest one-year increase since 1995.

The report stated that there are still some pockets of the country that are seeing robust price appreciation, but the price weakening is now being experienced in a "significant portion of the country," with prices dropping in 20 states.

Existing home sales continued their downward spiral for the eighth consecutive month in October, the AP reported today based on a report from the National Association of Realtors. The 5.1% drop in the median price of a home sold compared to the same time a year ago is the biggest year-over-year price decline on record, according to the AP.

Of course, analysts blame this housing slump on the serious credit crunch, but we all know the housing bubble that burst has a lot to do with it too. Housing was in a bubble and as with all bubbles, prices went up much further than they realistically should have in many areas of the country. People who bought homes at the peak of the bubble are the hardest hit right now because their mortgages probably already are upside down (they owe more than the home is worth) if they bought in one of the hard-hit areas -- California, Florida, Michigan and Nevada. Analysts don't think this housing price drop is over. I've seen predictions of a drop of 10% to 30% in the next five years in some areas of the country. The hardest-hit areas already have seen a 30% drop or worse.

While I keep hearing people talk about subprime borrowers who default on their loans as idiots who should never have bought a home in the first place because they couldn't afford the payments, the reality of the situation is that everyone is being hurt by the subprime mortgage mess, and even prime mortgages are now seeing strain. If something isn't done to make it possible for people to save their homes from foreclosure, prices will only drop even more dramatically as more and more foreclosure homes are sold are fire-sale prices.

The housing sector finally got a break today after the Commerce Department reported that September new home sales were up from the August numbers, to 770,000 in the month from 735,000 in August. Analysts were at best cautiously optimistic, stating that one month's report does not mean the downtrend in housing has been reversed, and also that the Commerce Department numbers are not always accurate. The figures were revised down by almost 10% in August, in fact.

However, Toll Brothers (NYSE: TOL), as a luxury home builder, is somewhat less exposed to the credit problems plaguing others around the industry. If you think the September sales numbers are a good sign, then now could be a good time to look at a bullish hedged trade on TOL.

Like others in the housing sector, TOL has been beaten down this year, from a high of $35.64 in February to a low of $18.85 in August. The stock has seen some gains over the last two months, but continues to struggle against resistance in the low $20s. TOL opened this morning at $22.16. So far today the stock has hit a low of $22 and a high of $23.19. As of 2:50, TOL is trading at $22.49, up $0.31 (1.40%). The chart for TOL looks bullish with slight deterioration, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

It seems like we just cannot bust out of the current housing slump we have been in this year. Today we got more negative news, as the National Association of Realtors reported that sales of existing homes fell by 8 percent during the month of September.

September's drop is the largest one-month decline since all the way back in 1999, and resulted in home prices dropping yet again. During the month, the average price for existing home sales fell to $211,700. With this price drop, we have now seen prices fall 13 of the past 14 months, putting prices 4.2 percent lower than the same period last year.

Every segment of the country felt the pain last month, with the Northeast taking the biggest hit as sales dropped 10 percent. The West saw sales drop 9.9 percent, the Midwest experienced a 7 percent decline and sales in the South fell by 6 percent.

The New York Times has an article this morning about the recent housing data showing home sales and prices fell sharply once again in August. This only re-enforces what most of us have already accepted ... the housing crisis is still a long way from being over.

During the month of August, new home sales dropped to the their slowest pace in the past seven years. Not really too surprising as this news seems to be the same every month lately. Sales of new homes dropped to an annual rate of 795,000 units. Prices on new homes were down a pretty remarkable 7.5% from the same period last year to "only" $225,700 as credit concerns and rising inventories continue to weigh down the market.

The drop in home prices is the steepest monthly decline the market has seen all the way back to December 1970 (before I was even born). With the current data continuing to prove what many of us already fear (things are getting worse), one has to really wonder just how bad things are going to get before they are able to stabilize and rebound.

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.

Will Fed Chairman Bernanke base his interest-rate decision on 4% GDP growth in the second quarter, essentially looking through the rear view mirror, or on virtually every other data point that suggests the economy is slowing down?

Bernanke deserves plaudits for his handling of the economy, particularly halting rate increases knowing changes in Fed policy take time to impact the economy. Something Greenspan might not have done.

Bernanke's most important signal on where the economy could be is the 10-year bond that has crashed from 5.2% in late 2006 to 4.47% today. However, Ethan Allen Interiors Inc (NYSE: ETH) CEO Kathwari said yesterday at Goldman's retailer conference "our retail written sales on a comparable store basis were up modestly in June and July. This positive trend has continued in August." This is by no means a glowing review of the economy, but neither is it a sign of an economy in deep despair.

Meanwhile, the pending home sales index crashed 12.2% in July versus June, dropping to the lowest level since September 2001. Since the index tracks existing-home contract signings, not final sales, it is considered a leading indicator and suggests a big drop in home sales in August or September.

From all the evidence, the Fed should start dropping rates. With the drop in the discount having some calming effect, look for the Fed to start with a 25 basis point basis cut followed by two more to finish up the year.