It was an easy prediction to make -- that home sales in August would get worse. And boy, did they ever.

Maybe this is the bottom that the housing market has been hoping for, but trends suggest that there's more pain ahead.

The National Association of Realtors blames mortgage availability problems for the fall in existing home sales, down 4.3 percent to a seasonally adjusted annual rate of 5.50 million units in August from a level of 5.75 million in July. That's 12.8 percent below the 6.31 million-unit pace set in August 2006.

Lawrence Yun, NAR senior economist, said, "The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through. ... Lower sales contributed to a buildup of unsold inventory."

Citing an informal survey of real estate brokers, Yun said about 10 percent of jumbo loans were failing to close. Those are loans over $417,000.

He expects a similarly disappointing September. "Once we get through these disruptions, we'll get a better sense of where the actual market is in late fall as conditions begin to normalize."

Total housing inventory rose 0.4 percent at the end of August to 4.58 million existing homes available for sale, which represents a 10.0-month supply at the current sales pace, up from a 9.5-month supply in July. That's the slowest number of sales since August 2002, just before the housing "boom."

The only reason sales weren't worse was the slight easing of mortgage interest rates. Freddie Mac said the national average commitment rate for a 30-year conventional fixed rate loan was 6.57 percent, down from 6.70 in July.

Seconding the sales slowdown was the Standard & Poor's Case-Shiller home-price index, which fell 3.9 percent in 20 major cities from August 2006. The Case-Shiller index only covers the sale of the same single family homes over time.

The bad mortgage news helped to contribute to low consumer confidence. The Conference Board said its consumer confidence fell to its lowest level in nearly two years for September, but that reading could have taken place before the Federal Reserve lowered its target short-term interest rates by 50 basis points to provide borrowers some relief. Contrary to the belief of many, the Fed does not set mortgage interest rates, only the rates at which banks can borrow from one another or the Fed. In fact, following the Fed's movement, mortgage interest rates ticked upward.

One trend that isn't positive is the slowing of sales in cities that were defying the housing market recession by rising in price. The Case-Shiller index found that Atlanta, Charlotte, North Carolina, Dallas, Portland, Oregon and Seattle all reported slower sales. But price has been defiant in enough regions to lift the national median. According to NAR, the median home price now is $224,500, up from August 2006, when the median was $224,000.

Austin, Texas, one of the bright spots of the nation. The Austin Board of Realtors reported that existing home sales were down more than 10 percent from a year ago, with an inventory 21 percent higher than a year ago and equal to a four-year high. What makes the news confounding is that Austin's unemplyoment rate is at the lowest in six years. Usually, slow sales reflect a slowing job market, but not in this case.

In California, where one in 12 U.S. residents lives, home sales decreased a whopping 27.8 percent in August compared to a August 2006. Yet, the median price of an existing home increased a hefty two percent, said the California Association of Realtors. However, prices did fall in certain regions, noted the C.A.R. and prices per square foot have fallen overall to $336 from "last year's record high of $351," said C.A.R. President Colleen Badagliacco.

Credit problems were also to blame by C.A.R. for slower sales. "While low affordability, tighter underwriting standards and expectations of lower prices continue to pose challenges for the market, the decline in sales accelerated in August as a result of the so-called credit or liquidity crunch that began in July," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "The credit crunch emerged as uncertainty about the extent of the subprime problem drove investors across the globe to turn off the tap of funds to lenders in mortgage and other credit market segments. With credit drying up, even qualified buyers were unable to receive funding for home purchases."

She also expects the "impact of the credit crunch to play out over the next several month, and that it will continue to negatively impact sales."

The good news, says NAR President Pat V. Combs, is that the mortgage picture is improving. "Mortgage interest rates have been declining and loan availability is improving," she said. "Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us. The abundant choice of homes is permitting buyers to better negotiate price and terms. There are good opportunities in the market now, especially for first-time buyers."

Robert Shiller, an economist at Yale University and co-founder of the Case-Shiller index wrote Congress just before the Fed cut short-term interest rates last week that he believes the change in "boom" mentality among consumers poses a "significant risk" of a recession in the next year. Former Fed chief Alan Greenspan has also said in recent interviews that he believes the chances of a recession are closer to two to one, than three to one.

Many economists believe that homebuyers won't act until prices and interest rates come back down to where they were during the boom years of 2002-2006. Others believe the time couldn't be better to buy while interest rates are still relatively low and choices are high.