In the aggregate, housing sales look dim as the summer season nears move-now-or-forget-it August school starts, but there are glimmers of hope. Despite high new and existing inventories, home sales drops aren't as precipitous; homesellers are still optimistic, and there's evidence that new housing booms are making noise in some areas of the country.

Following a grim report by the National Association of Realtors, which blamed psychological factors as much as subprime mortgage problems for the May 2007 10.3 percent year-over-year recession in home sales, the Commerce Department reported that U.S. new home sales fell also. While existing home sales were about flat from April, down 0.3 percent, new home sales fell 1.6 percent in May after a brief surge in April to a seasonally adjusted annual rate of 915,000 units.

Adding an uppercut to the left hook was a related report by the Standard & Poor's Case-Shiller home price index which tracks home prices in two groupings. In the 10-city index of major U.S. cities, home prices dropped at the fastest pace in 16 years from April 2006 to April 2007, falling 2.7 percent. In the 20-city index, home prices dropped 2.1 percent year-over-year. The S & P/Case-Shiller indices -track same-home sales.

After months of hoping that housing drops had hit bottom, buyers are still on the sidelines waiting for a "sign" that it's safe to jump in and buy.

For those buyers who want to be early enough to take advantage of high existing inventories, the pickings are attractive. Existing home inventories are at an 8.9 months, which means it would take 8.9 months to sell the inventory down to zero homes on hand. A balanced market is widely believed to be six months, so sales taking longer than six months are considered to be slow and known as a buyer's market.

New home inventories are also over six months, but here's the sign buyers might be seeking. Sales are down 15.8 percent in the past year, but inventories are shrinking, down 1.1 percent, which means there's a 7.1-month supply of new homes as of May. That's awfully close to normal, and considering that the sales are below 1.0 million on an annually adjusted rate to 981,000, that's about two-thirds the number of new homes needed simply to meet new household formations, if household formations were at normal.

The NAR notes that household formation is slowing to below expectations, to about 415,000 on an annual basis, suggesting a large number of people are roommating, living with parents and otherwise doubling up. That's two-thirds below the rate of household formation in 2006. So maybe that means home prices will have further to fall as the inventory is worked through.

But home prices are already beginning to stabilize. April's sales pace for new homes beat March's and supplies are dwindling. Inventory in March was 8.3 months on hand. Inventories on new homes are down five percent in the past year, and the median sales price is also falling, but not by much. New home prices have only fallen 0.9 percent to $239,100 through April.

The fact that home prices aren't dropping more may be due to the polar opposite psychological factors that are keeping home buyers quiet. Sellers are optimistic if not giddy.

A study by the Michaels Opinion Research, Inc. conducted for the Boston Consulting Group, found that homeowners are gaining confidence. Fifty-five percent of homeowners said their homes would sell for more money than this time a year ago. Last year, 59 percent of homeowners believed their homes would sell for as much. Further, the survey found that 74 percent of homeowners are confident they could sell their homes in the next six months for the price they believe their homes are worth.

Wealthy Americans are even more confident. The 2007 Coldwell Banker Previews International Luxury Survey conducted by Affluent Dynamics found that 56 percent of wealthy homeowners expect the value of their home to increase "somewhat," and 10 percent expect their property to increase "significantly" during the next 12 months.

The optimism shared by average and wealthy homeowners could be the reason why home prices aren't lower and why they are looking less and less likely to plummet precipitously as many in the financial press suggest they should.

It can't be said enough that real estate is local, yet the psychology of buyers and sellers is strongly impacted by national news and aggregated numbers that may mean little in local markets.

While price appreciation has slowed for 17 consecutive months, writes one report, home prices have doubled in the aggregate since 2000, providing plenty of room for some price recession in many markets.

Prices are down in cities as diverse as Detroit (down 9.3 percent) and San Diego (down 6.7 percent), but for wildly different reasons. Detroit has suffered extensive industry job loss, along with the gradual out-migration of older residents and retirees to warmer climates, while San Diego's ideal oceanside climate appealed to migrants, Silicon Valley price-busted Californians, and second home buyers, creating a booming market. Prices there are merely coming back down to earth.

Many cities, such as Atlanta, Dallas, and Denver, sat out the housing boom, and are now seeing prices rise instead of fall. Seattle had the largest price gains over the past year, according to the S & P at 9.6 percent, and prices were also up in Charlotte (7 percent) and Portland, Oregon (6.4 percent.)

The National Association of Realtors also tracks housing and found that Seattle home prices are up over 12 percent for the year. Could be the city's below-four percent jobless rate has something to do with that. Texas, which sat out the housing boom, has seen its unemployment rate go from 5 percent to 4.1 percent, reigniting booms in many cities across the large state.

If buyers are waiting it out in some communities, they may be facing paying higher prices. Other metros with booming prices simply sat out the housing boom of the aughts, and are now coming into their own. Affordability appeared to be the greatest factors. For example, Cumberland, Maryland, which had the largest price increase year-over-year through May (17.1 percent) is well below the national housing average of $212,300, at a little over $100,000. Out of the remaining double-digit price increase performers, most are medium to small towns: Beaumont, TX; Biloxi, MS; Salem, OR; Bismarck, ND; Albuquerque, NM; Salt Lake City, Utah; Farmington, NM; and San Antonio, TX.

Out of all those cities with double digit gains, Seattle was the only city with home prices above the national median.

Published: June 27, 2007

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Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment. Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's. 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. To contact Blanche, email her at . For more articles by Blanche, click here.