According to DataQuick , California home are down, despite a desperate need for housing. A total of 42,450 new and resale houses and condos were sold statewide last month, but that's down 14.8 percent from 49,800 for August and down 28.8 percent from a 59,600 for September 2005, says the site, the slowest rate since 2001 when 41,880 homes were sold.

Also down is the median price at $466,000 from 2005's August's $472,000, but that's also up 2.4 percent from $455,000 for September a year ago. Bubbleistas may moan that the 2.4 percent year-over-year increase was the lowest since February 1997 when the $150,000 median was the same as a year earlier, but the fact that prices haven't dropped is encouraging the housing bulls that a new boom could begin, particularly in existing homes.

Newport Beach homebuilder William Lyon Homes reports a 29 percent sales decline in California, with half as many orders for new homes, says a report in the Orange County Register. The company said "an average of 9.1 new-home orders were received per sales location over the summer, down from 19.9 the year before. Overall, the company received 501 total new orders in the third quarter this year, including Nevada and Arizona, compared to 834 in the third quarter of 2005, the company reported, as well of a rising cancellation rate in the third quarter to 39 percent. The newspaper said that similar news is coming from other homebuilders around the country, including D.R. Horton Inc., who also reported a significant drop in new orders and a 40 percent cancellation rate third quarter in California."

Yet, despite the bad news, new construction of homes rose 5.9 percent in September to a seasonally adjusted annual rate of 1.772 million, the Commerce Department reported -- the first increase in housing starts since May and the highest level since June. Starts overall were down 18 percent for the past year. Building permits fell 6.3 percent to a five-year low of 1.619 million annualized for the eighth month in a row, now off 28 percent for the past year.

That said, the National Association of Home Builders said this week that builder sentiment is rising in October on the belief that the market is stabilizing.

Things will get worse in California before they get better, but a new forecast by the California Association of Realtors suggests that future declines will be modest. Sales prices will fall, but not precipitously.

C.A.R. says the median home price in California will decline 2 percent to $550,000 in 2007 compared with a projected median of $561,000 this year, while sales for 2007 are projected to decrease 7 percent to 447,500 units, compared with 481,200 units (projected) in 2006.

“The housing market clearly downshifted in 2006 from the record-setting sales and robust price gains of the last few years,” said C.A.R. President Vince Malta. “The residential real estate market in 2006 was characterized by a gap between buyer and seller expectations. Sellers sensed that the peak of the market was approaching, yet still hoped to obtain the highest possible prices. Buyers’ sense of urgency waned as the number of homes on the market grew and they took longer to identify and subsequently purchase a home."

“Although the 2007 sales decline is not expected to be as steep as what we experienced this year, the psychology of the market -- matching the differing expectations of sellers and buyers -- will continue to be a factor as REALTORS® help consumers navigate their way through a changing market.

“While we’re projecting a modest decline in the median price of a home, over the long term, residential real estate in California has been and will continue to be a solid investment. Since 1968, the long-term average price appreciation is 9.1 percent,” he said.

C.A.R. Chief Economist Leslie Appleton-Young adds, “While we recognized that the frenetic sales pace of the past four years could not continue indefinitely, the housing market in 2006 did not fare as well as we initially expected. The anticipated slowdown that began in October 2005 was heightened by dual natural disasters in the Gulf Coast, a significant drop in consumer confidence, rising energy and raw materials costs, and a series of Federal Reserve interest rate hikes that began in June 2004. Fixed-rate mortgages also hit and passed the psychological threshold of 6 percent, while adjustable rate mortgages passed 5 percent, ultimately causing a decline in affordability. Affordability concerns also will continue to constrain sales for many households in California throughout 2007, especially for first-time home buyers.

“Looking to 2007, we expect that some regions of the state, including the Central Valley, San Diego and Riverside/San Bernardino regions, will experience sales declines greater than the state as a whole,” she said. “That also holds true for several second-home markets, including the desert areas of Southern California and the Wine Country.”