Don't break out the champagne glasses quite yet, but there are more economic signs this week that the worst is over for the three year real estate correction cycle.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

Any time we're quoting mortgage rates in the fives, that's GOT to be positive news for home buyers with reasonably good credit.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend.

That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

Which is a shame if you look at conditions in most markets objectively. Most of the current numbers add up to an excellent buying opportunity.

Prices are more affordable they've been in several years. There's a bumper crop of houses to choose from. And mortgage money is cheap and getting cheaper.

Maybe the message is just taking a little time to get out there.

Published: May 22, 2008

Use of this article without permission is a violation of federal copyright laws.

Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.