The housing market is showing a little schizophrenia, according to February sales reports. On one hand, existing housing went through the roof, while new homes sales dove into the ground.

What does it all mean?

The National Association of Realtors® reported that February existing home sales rose over 5 percent after five straight months of softening from a record year set earlier in 2005.

NAR spokespersons were sanguine.

"Housing is simply returning to a normal market," said Thomas M. Stevens, a builder from Vienna, Va., NAR's 2006 president.

Chief economist David Lereah suggested that the weather had a lot to do with the trend reversal. Home inventories are over a five-month supply, which is about the same as January, and close to the all-time high water inventories of 3.04 million homes set in 1986, but home prices have yet to soften and are still up over 10 percent nationwide.

"This is a tale of two cities," Lereah said. "Sales have fallen by double-digit percentages in some of last year's hottest markets, such as Phoenix, Fort Lauderdale and San Diego, he said. But some of the most affordable markets are now heating up, he said, pointing to Indianapolis, Albuquerque and Houston."

Meanwhile, the Commerce Department said that new home sales fell a precipitous 10.5 percent to a seasonally adjusted annual rate of 1.080 million in February, the lowest rate of sales since May 2003. However, it was the largest percentage decrease in almost nine years, and that's a little scary, putting inventories over the benchmark 6-month supply.

But unlike existing homes, new homes dropped three percent in price from a year earlier to $230,400. That's $6,900 less than in February 2005. February also marked the fourth straight month-over-month decline in median price since the record setting figures of $243,900 in October 2005. We're now 5.5 percent below that watermark.

What took the new homes market down so far was a 30 percent drop in new home sales in the West, a statistical anomaly so great that NAHB chief economist David Seiders questions whether or not the figure will be revised.

"There's no doubt that sales are trending down," he conceded to CNNMoney.

In most markets, homes that take over six months to sell are said to be buyer's markets, where high inventories and bargaining positions favor the buyer.

So what does this mean? It means that demand is waning. The question is a slight rise in interest rates (back to 2003 levels) enough to derail the housing market? Or are speculators merely moving their money from housing into other instruments?

One thing is certain -- the fundamentals that made housing attractive haven't changed -- primarily tax incentives and the lack of better investments elsewhere (a poorly performing, corrupt stock market.) Plus new homes have been at an all-time premium. Sixty percent of the homes sold in the U.S. in 2005 were less than 10 years old, according to NAR.

So what's changed? It's a certainty that falling new home prices will impact existing home prices, and that the next few reports from NAR and the Commerce Department will show a decrease in sales volume and price from previous years -- except in certain areas -- and the effect will only be temporary. While one area is on a decline, another might be on the ascent as people move their money from one community to another that promises more affordable housing, one of the linchpins to a better lifestyle.

Realty Times believes that homeownership is still so well supported by continuing fundamentals like tax incentives and relatively low interest rates, that it will take only a slight decrease in housing prices to reignite record-setting sales again, particularly in undervalued Texas and Mid-western cities and unaffordable perennial favorites like Florida and California, unless ... the Federal Reserve continues raising short-term interest rates which push long-term interest rates higher. While trying to cool inflation, the Fed could freeze the housing market. To date, the Fed has raised short-term interest rates 15 times, and is widely expected to raise rates to 5 percent in May.

With so many consumers already responding to higher home prices by using exotic loans and rolling the housing boom to less expensive cities, there's not much more that can be done to put wealthy homebuyers into the market.

Meanwhile, consumer confidence as surveyed by the Confidence Board, was unexpectedly optimistic in March, and the number of consumers who said that they would buy a home in the next six months rose by four percent.

Published: March 29, 2006

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.