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Here's how a top mortgage industry economist sees conditions in the market at the moment: It's all kind of "flat", says Orawin, senior forecast economist for the Mortgage Bankers Association of America.

What Dr. Velz was referring to were the latest big-picture, "macro" numbers on the U.S. economy that underpin the housing market: The gross domestic product or GDP -- all the goods and services generated in the national economy -- registered a zero point six (0.6) growth rate in the first quarter.

No question that's pretty anemic. But it's better than the negative growth predictions that had been made by many Wall Street analysts.

In the latest month, manufacturing production was better than just about anybody expected -- factory orders jumped by 1.4 percent in March. No big deal you say? Well maybe, but it was the first increase in factory orders we've seen in the last three months.

The employment picture was also better than projected. The US economy lost 20,000 jobs in the most recent month, which is not good. But Wall Street had forecast an 80,000 job loss number -- and the stock market took a nice bounce on the news of the smaller loss.

Plus, the national unemployment rate dropped to 5 percent from 5.1 percent.

On top of all this, the Federal Reserve did precisely what most analysts expected -- cut the short-term federal funds rate by another quarter of a point.

Now that doesn't translate into lower 30-year mortgage rates, but it is very welcome news for millions of people with home equity credit lines and adjustable-rate mortgages heading for payment resets.

The fed funds rate is now at 2 percent, and the prime bank rate is just 5 percent - which is outstanding -- and should eventually have a stimulative effect throughout the economy.

Mortgage rates also fell slightly last week. Average thirty year rates inched downward to 6.01 percent, according to the Mortgage Bankers, and 15 year rates averaged 5.5 percent.

All in all, things could be worse. And they could be better. We are all paying horrendous gas and food prices and that psychology diminishes consumers' appetites to buy and sell houses.

On the other hand, the underlying US economy is defying the pundits, hanging in there like a boxer who refuses to go down. Home prices and the cost of money are more affordable, and a number of local real estate markets are picking up on that combination -- and improving.

So: the economy may be flat. But considering the alternatives, flat looks relatively favorable at the moment.

WASHINGTON (AP) - Sales of existing homes fell for the eighth time in the past nine months, with the backlog of unsold single-family homes rising to the highest level in more than two decades.

The National Association of Realtors said that existing home sales dropped by 1 percent to 4.89 million units, matching the all-time low set in January. These records go back to 1999.

The median price for an existing home dropped 8 percent, compared with a year ago, to $202,300. Analysts predicted further price declines given the huge backlog of unsold single-family homes, which rose in April to 10.7 months supply at the current sales pace, the highest inventory level since June 1985.

The April sales drop was slightly smaller than had been expected. The housing industry is being battered by a prolonged slump that has seen sales and prices decline and mortgage foreclosures soar, the aftermath of a five-year housing boom.

Sales were down the most in the Midwest, a drop of 6 percent, followed by a 4.4 percent decline in the Northeast. Sales were up 6.4 percent in the West, a region of the country where prices fell by the sharpest amount, and were unchanged in the South.

Even with the weak results for April, Lawrence Yun, chief economist for the Realtors, said he saw reasons for optimism for the second half of this year as more types of mortgages become available as industry and the government respond to a severe credit crunch that began last August.

"I would encourage buyers who were disappointed by poor mortgage options to take another look at the market because the lending changes are significant," he said.

However, other economists were not as optimistic about a rebound in sales, contending that the continued drop in prices was keeping potential buyers sitting on the fence, waiting for prices to fall further.

"With prices collapsing, the incentive not to buy a home is increasing by the week, and with inventory showing no sign of improvement, prices will keep falling," predicted Ian Shepherdson, chief U.S. economist at High Frequency Economics.

The severe slump in housing and the related credit crunch, which has resulted in multibillion-dollar losses at some of the nation's largest financial institutions, has depressed growth and raised worries about a recession.

The central bank has taken a number of unconventional steps — especially since March, when the credit crisis intensified — to help squeezed banks and big investment firms overcome problems and try to get credit flowing more freely again.

Those efforts appear to be paying off and "have contributed to some improvement in financing markets," the Fed chief said in prepared remarks delivered via satellite to a financial markets conference sponsored by the Federal Reserve Bank of Atlanta in Sea Island, Ga.

Bernanke noted some improvements in the markets for certain mortgage-backed securities, such as those backed by Fannie Mae and Freddie Mac, as well as some fixed-rate mortgages and corporate debt.

Moreover, the Fed's extraordinary decision in March to let investment firms go to the Fed for emergency loans "seems to have bolstered confidence," Bernanke said.

"These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal," he said.

For instance, there are still strains involving a widely used interest rate called the London interbank offered rate, or Libor, Bernanke said. And "funding pressures" have also been evident in the "strong participation" of commercial banks in a Fed auction program that has made billions of dollars available in short-term cash loans, he said.

Bernanke said the Fed policymakers "stand ready" to further increase the size of these loans in the future if warranted by financial developments.

In his speech, Bernanke did not talk about the Fed's next move on interest rates or the broader state of the U.S. economy, which many fear is on the edge of a recession or in one already.

To bolster the economy, the Fed last month cut a key interest rate by one-quarter percentage point to 2 percent. At the same time, policymakers indicated that their rate-cutting campaign, which started in September, could be drawing to a close. If that happens, many economists believe the Fed will focus more on its various efforts to relieve stressed credit markets.

After a run on Bear Stearns pushed the nation's fifth-largest investment bank to the brink of bankruptcy in March, fears grew that others might be in jeopardy, given major stresses in credit and financial markets at that time.

Scrambling to avert a market meltdown, the Fed — in the broadest use of the central bank's lending authority since the 1930s — agreed in March to temporarily let investment firms obtain emergency financing from the Fed, a privilege previously granted only to commercial banks. That's one of the Fed's most significant actions.

The Fed also has moved to make cash loans to commercial banks and to make super-safe Treasury securities available to investment firms. All these efforts are aimed at bolstering confidence and getting firms to behave in a more normal fashion so they'll be more inclined to lend to each other, consumers and businesses.

Ultimately, financial companies will need to raise new capital and improve risk management to address the fundamental sources of financial strains, Bernanke said. "This process is likely to take some time," he added.

And once financial conditions become more normal, the extraordinary provisions to provide ready sources of cash to financial institutions will no longer be needed, he said.

Even as the Fed has stepped in to provide such help, it also is mindful of creating a "moral hazard," where financial institutions might be more inclined to take certain risks if they believe the Fed will be there to bail them out.

"The problem of moral hazard can perhaps be most effectively addressed by prudential supervision and regulation that ensures that financial institutions manage their liquidity risks effectively in advance of the crisis," Bernanke said.

The Fed is reviewing its policies on this front to see if improvements can be made, he said.

"Of course, even the most carefully crafted regulations cannot ensure that liquidity crises will not happen again," Bernanke said. But if moral hazard is mitigated and if financial institutions and investors tighten up risk-management practices, "the frequency and the severity of future crises should be significantly reduced," he said.