For its latest forecast, the National Association of Realtors suggests that tighter credit for home mortgages will "measurably dampen home sales in the short term and postpone an expected recovery for existing-home sales until 2008, but the NAR's real complaint was aimed at builders.

"Tighter credit," of course, was a strong hint to the Federal Reserve that it should ease short-term interest rates at its meeting next week. Short-term interest rates are the suggested rates at which banks borrow from one another. If short-term rates are lower, mortgage rates and other consumer borrowing rates could go lower, too.

Lawrence Yun, NAR senior economist, said unusual disruptions in the mortgage market are dampening the outlook for home sales, notably for August and September. "There's been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines."

He says the jumbo loan market is now "beginning to settle, and FHA-insured loans are helping to fill the subprime vacuum."

That sets the stage for improved volume -- existing-home sales should top 2002, "the second year of the housing boom."

Existing-home sales are projected to be 5.92 million in 2007 and to rise to 6.27 million in 2008. That's still below the 6.48 million homes sold in 2006, but it's moving in the right direction.

The NAR is firing all the bullets it can at slowing home sales. The organization has also been vocal that the government should step in and help at-risk homeowners, by supporting President Bush's proposal that the Federal Housing Administration alter its policies (relax its lending standards) to allow more people to refinance their homes using FHA-insured loans, and thus "halt the rapidly increasing rate of foreclosures affecting many American families today."

Pat V. Combs, 2007 president of the National Association of Realtors®, said, "FHA modernization should include increasing loan limits, eliminating or reducing the amount of cash down payments required for FHA loans, establishing risk-based pricing, revising prepayment penalty regulations, and increasing loss mitigation efforts." She also advocated that the NAR support "separate legislation to abolish the mortgage cancellation tax that consumers are hit with when their mortgage is forgiven by their lender."

Not much else can be done about the foreclosures coming onto the market to compete with existing home sales, but the number of new homes being built can be controlled.

Existing housing inventories rose in July 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.

What has to have the NAR worried is that the NAHB recently reported that its builders' inventories are coming down slightly, but that's better than going up.

The inventory of unsold new homes in July edged down to 533,000, or 7.5 months on hand, down from June's 7.7 months on hand.

Completed homes for sale were 33 percent of the inventory, while units still under construction represented 51 percent of the inventory and units for-sale that were permitted but not yet started represented 16 percent of the inventory level -- essentially no change from the previous two months. The median length of time that completed homes were on the market was 6.1 months in July, up from 5.9 months in May.

In other words, attention will continue to be pulled from existing homes by new homes.

"A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory," said Yun.

Existing-home prices are likely to slip 1.7 percent to a median of $218,200 this year before rising 2.2 percent in 2008 to $223,000, says NAR. The median new-home price is estimated to drop 2.2 percent to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.

The 30-year fixed-rate mortgage is projected to average 6.4 percent for the balance of the year and then edge up to the 6.5 percent range in 2008.

"We expect the Fed to cut rates two times before the end of the year, which will lower interest rates for prime borrowers and FHA-insured loans," Yun said. "FHA modernization could buffer the fallout of subprime loans, which would raise our sales forecast in the future."

And if homebuilders would just stop building, the outlook would be even better.