Home sales have dropped nine percent since year-ago levels in July 2006, according to the National Association of Realtors. The wonder of it is that home sales haven't plummeted even further thanks to the steady and inaccurate drum beat of the financial press that mortgage money isn't available. For that reason alone, sales figures for August should be disastrous.

First came the Commerce Department's announcement that housing starts and permits both fell to their lowest levels in more than a decade, but let's look a little more closely at the numbers. Simultaneously, new home sales rose 2.8 percent to an annual rate of 870,000 units. While the National Association of Homebuilders suggested that the rise in sales enjoyed a tailwind from builder incentives, the trend is up -- not down. The bad news is that housing starts fell to an annual rate of 1.38 million homes, from the June rate of 1.47 million.

If we're having trouble selling the homes already in production or completed, why are we building almost twice as many more? Do the builders who have their solvency on the line see something that the panicking press and buyers don't see?

A similar conundrum is found in the existing home sales numbers. Home sales were essentially flat between June and July, slipping a minuscule 0.2 percent to a seasonally adjusted annual rate of 5.75 million units. But inventories rose to 5.1 percent to a 9.6-month supply -- a number not seen since the housing recession of 1989-1991. Inventories of unsold condos rose 20 percent, an 11.9-month supply. A balanced market is said to be six months of inventory on hand. At current inventory levels, it would take nine and a half months to sell through to zero on hand.

That also suggests that the August numbers will be abysmal. Most of the bad news about mortgages came throughout the summer, but the bad news really stunk by August:

• Over 120 mortgage lenders shutting doors or declaring bankruptcy

• Loan money is drying up because investors stopped buying mortgage-backed securities

• People arriving at the closing table only to find their lender has disappeared

• Rising interest rates have put many who have adjustable rate mortgages from subprime to Alt-A to A-paper in jeopardy. Rates approached 6.70 percent for 30-year, fixed-rate loans, up half a point from May, 2007.

• Foreclosures rose to the worst of the 1990s recession levels, following the savings and loans crisis.

• Buyers are waiting for prices to drop, mortgage interest rates to drop and the economy to improve all at the same time

In California, where one out of eight U.S. residents lives, the news was even more grim and confusing. Home sales decreased 22.7 percent in July compared with the same period a year ago, while the median price of an existing home increased 3.2 percent, said the California Association of Realtors.

C.A.R. President Colleen Badagliacco, offers a reasonable explanation. "The decline in sales we experienced in July continues to be driven by both tighter underwriting standards since the start of the year and the adverse psychological impact of news and information regarding increases in foreclosures and the subprime situation," she says. "Although the median price posted an increase statewide, there is a disparity between the lower-priced or entry-level markets where prices generally are soft at best and sales have declined sharply, and some higher priced markets that continue to experience price appreciation along with somewhat smaller decreases in sales."

Adds C.A.R.'s Vice President and Chief Economist Leslie Appleton-Young, "With credit drying up in recent weeks, we expect further weakness in sales over the next few months. It is too early to say how long the current credit crunch will continue, but we are hopeful that we will avoid a prolonged credit crisis that might cause sales to decline over a longer period of time."

But just how bad is the credit crisis? Contrary to most news reports, mortgages are available for the majority of potential buyers, says NAR President Pat V. Combs. "For buyers able to qualify for conventional financing, there are ample opportunities in the current market," she said. "Availability and pricing of conventional loans are reasonable, and FHA-insured mortgage applications have been rising as low- and moderate-income buyers seek alternatives to subprime loans. If buyers are in it for the long haul, now can be a good time to get into your home."

Also, there are many sources of credit that are going unheralded by the press. For example, credit sources from the FHA to credit unions are not having mortgage meltdowns, because they never made subprime loans.

And it's worth noting, that both Lawrence Yun, senior economist for the NAR and Appleton-Young say that the falling housing sales appear to have little to do with economic problems. In fact the national and California economies are both growing.

But all we hear about is the bad news, including a new report by the National Association of Business Economics that says loan defaults and excessive debt are a bigger concern than terrorism.

Fear has taken on a momentum of its own, causing the stock market to shed more than 5 percent in the last few weeks.

But there are some positive things happening. Interest rates have come back down to May levels. Builders cut prices 3.4 percent from year-ago levels. And unemployment claims are dropping, at least for the week ending August 18, 2007.

It's time for some moderation.