You would think last month's Existing Home Sales report signals more trouble ahead for the housing market. 

Quite the opposite.

Beyond the headlines is the real story;  one that shows housing market fundamentals are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply.  It's true the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the number of homes available to buy fell, too.

• Banks have put the brakes on foreclosures
• Economic uncertainty is reducing job-related relocations
• Builders have all but stopped building new homes

The national housing supply is as low as it's been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008. 

Also, demand for homes is expected to rise.

• The Fed is trying to hold mortgage rates low
• Fannie Mae is opening its checkbook to real estate investors
• The stimulus package is granting a $8000 tax credit to first-timers

So, the headlines aren't wrong; they're just incomplete. 

In looking at all of the data and not just one piece, we find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

(Image courtesy: Wall Street Journal Online)