Sometimes it's hard to know how much weight to give certain trends. That's why the National Association of Realtors' David Lereah is cautiously optimistic that the housing market will recover from a rare decline, despite growing worries that the troubled subprime market will threaten the housing recovery and ripple through the entire national economy.

Noting unusual weather patterns and problems in the subprime lending marketplace, David Lereah, the National Association of Realtors' chief economist, said, "Underlying trends point to a housing recovery in 2007, but it will take a couple of months for us to get a better handle on it. Existing-home sales are expected to slowly improve from what appears to be the cyclical low last fall, but we think there will be some additional pain in the new home market, which hopefully will start to rise later in the year."

Existing-home sales are projected at 6.42 million this year and 6.66 million in 2008, compared with 6.48 million last year. "Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next. However, total sales this year will be fairly close to 2006 because last year started high and ended low," Lereah said.

"Lending problems in our nation's subprime marketplace are building, which could inhibit future housing activity and further dampen our forecast. Even so, these problems are likely to be contained and not spill over into the prime mortgage market."

However, new information from the Mortgage Bankers' Association, coupled with reports that consumers slacked off of spending, was disappointing enough to send the stock market seesawing from a drop of over 200 points.

The MBA reported that late mortgage payments met a 3½-year high or 4.95 percent of outstanding mortgage loans, in the final quarter of 2006. Not surprisingly, new foreclosures followed surging to a record high in the same period, to 0.54 percent. Needless to say, both delinquency and foreclosure rates were higher for "subprime" borrowers, especially those with adjustable-rate mortgages.

Late payment rates for all subprime loans jumped to 13.33 in the fourth quarter and the delinquency rate for subprime borrowers with adjustable-rate mortgages was 14.44 percent, the highest rate in four years.

Not surprisingly, the delinquency and foreclosure report dovetails nicely with home sales reports from the same period. In the fourth quarter (when mortgage interest rates were higher)

The fourth quarter as reported by NAR was a rout. Existing home sales, including condos, dropped 2.7 percent in the fourth quarter compared to the same period a year earlier -- the biggest year-over-year drop on record.

Yet the same period reported both the worst numbers and some improvement. New home units hit a 10-month supply in November and were down to a 5.9-month supply in December 2006. Existing homes were at a 6.8-month supply in December, down from a 7.3-month supply in November.

In January, new home sales hit an all-time low, according to the Census Bureau. NAR also reported cooling home sales as projected by the Pending Home Index, which is based on contracts signed but not closed. In January, the index fell 4.1 percent to an index of 108.7 from an upwardly revised reading of 113.3 in December, and is 8.9 percent lower than January 2006.

This suggests that the next delinquency and foreclosure report will also be unfavorable, which could add more pressure to the housing market. Rising inventories, exacerbated by as many as 200,000 (NAR estimate) to 500,000 or more defaults, could impact sellers to lower their prices even further.

Meanwhile, the bad news drove up bond prices, lowering yields, to which long-term lending is tied. That means that mortgage interests could lower further still, providing incentive for homebuyers to buy and ARM holders to refinance.