Home prices have fallen for the first time in 16 years according to the National Association of Realtors and the S&P/Case-Shiller national home price index, but that's not the only bad news for buyers and sellers -- mortgage interest rates are rising, and quickly.

What a difference a few weeks makes.

While no one expected housing sales to recapture the glory days of record low interest rates, easy mortgage loan products, low inflation, a poorly performing stock market, and the lure of rising housing prices, only a few of those conditions have changed, but they may have changed enough to send housing into a freefall.

Naysayers have predicted that housing will truly sink, bringing the record gains of the past few years down with it. One of those prognosticators is Yale economist Robert Shiller, author of "Irrational Exuberance," a book which correctly predicted the stock market reversal of 2001, which began almost to the day it hit the bookstores.

Since then, Shiller has been turning his attention to housing, creating a housing price index that he and others believe is more accurate than others because it tracks the sales of the same properties and excludes refinancings. Shiller has been predicting a housing market downturn for years, and created a company that sells futures which allows people to hedge against housing price swings.

"Markets are driven by the unenlightened," he told Newsweek back in 2005. By 2007, Shiller told Money Magazine that "the story that has sustained the housing boom is that homes are like stocks."

But housing isn't like stocks, which proves Shiller's point. It's the unenlightened who drive the market. That could explain why -- despite improved economic conditions across most of the nation since housing reached its peak in 2005, it's in a reversal.

And the future doesn't look brighter for the summer months ahead:

• Interest rates have been on a tear for six weeks, shooting up over half a point in the last three weeks. The benchmark 30-year, fixed-rate mortgage is at 6.42 percent, well over the 6.14 percent in April.

• Thanks to the subprime loan debacle, during which a few lenders declared bankruptcy, lenders are tightening their underwriting standards. What the effect is on subprime to prime borrowers is remains to be seen, but many are already blaming slowing housing sales by at least five percent on tighter lender standards.

• Inflation measured without food and energy is somewhat stable, but tell that to everyday people who saw gas prices at the pump jump 25 percent this spring. In turn, milk, eggs, and any other product that depends on shipping went up in price, too. It's hard to think about buying a home when you're wondering how to fill up your SUV. Though gas prices have moderated, they're still well up over this time last year.

• Housing is no longer the preferred alternative investment to stocks. Without buyers, flippers don't have a market, so they have to change strategies to buy and hold, something they're not going to do in a price-conscious market. The Dow Jones Industrial Average is nudging record highs nearly every day, and is over 1500 points higher than it was at the height of the housing boom.

• Home prices are no longer rising, according to NAR and Shiller's home price index. What remains to be seen is how widespread housing price deflation will be. Currently, it's confined to the so-called bubble markets, where home prices shot well above historic norms and are overdue to come back down to earth. First quarter home price gains were the slowest in 10 years, said the Office of Federal Housing Enterprise Oversight.

• Pending sales of U.S. homes fell by 3.2 percent in April, the National Association of Realtors reported, with sales in the West and Northeastern regions of the country reporting big drops. The pending home sales index is 10.2 percent lower than a year ago. However, that's still close to the sales rate of 2002, the second year of record-breaking sales recorded by the NAR.

• Homebuilders sentiment fell to a 16-year low in May, largely due to a poor 10-year low for builder permits in April.

Yet, despite this spate of bad news for the housing industry, other economic news is positive, but for how long if housing sales get any muddier?

• The Dow Jones Industrial and the S&P 500 are in recorded territory.

• The Labor Department showed that 157,000 adds were added in May, up from 80,000 jobs gained in April.

• Consumers are holding up, even at the gas pumps. That's because core consumer prices -- excluding food and energy prices -- went up less than economists expected.

• Inflation appears temporarily contained between the one and two percent the Federal Reserve likes.

• As slowly as home prices rose in the first quarter of 2007, they beat the other goods and services in the Consumer Price Index.

Yet another report isn't so optimistic -- personal income fell 0.1 percent in April, for the first time since August 2005. Savings rates in April were down 1.3 percent, the lowest level since August 2006.

That has economists beginning to worry that a recession is on the way. Only low interest rates and low inflation can keep the economy moving at this point, say some. The economy is based on liquidity, and right now, too much of that liquidity comes from borrowed money.

Already, the economy is beginning to show signs of slowing. While growth was measured at 2.5 percent in the fourth quarter of 2006, the first quarter of 2007 was an anemic 0.6 percent, inches shy of a recession.

Published: June 5, 2007

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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.