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If you only looked at the headlines, you may have missed the important part of December's Existing Home Sales data. 

While most papers trotted out some version of a "Home Sales hit 17-year low in 2008" story, astute observers noticed that national housing supplies cratered last month, providing a support point for a battered U.S. economy.

Based on the number of active home buyers and sales volume nationwide, there is now 9 months worth of housing supply -- down from November's reading of 11 months.

When supplies fall, prices rise.  It's basic economics.

Look at this chart from the Wall Street Journal.  It shows the cities with the tightest housing supply as of December 2008.  In particular, note the stat lines for foreclosure havens Sacramento and Orange County, California:

• Both cities appears to be shedding home inventory quickly
• Both cities appear to be shedding home values quickly, too

The two points are related, of course, and it helped push the West Region to the forefront of December 2008 home sales activity.  And then there's the secondary effect from outsized, West Region activity (which many analysts say is foreclosure-fueled).  The West literally caused the national median sales price to plummet last month, directly leading to the other headline run by newspapers today.  Nationally, the median sales price is down by $30,000.

To that, I say: Who cares?  

Statistically, Median Sales Price means nothing to an active home buyer or home seller.  It's just the price point at which half of all homes sold for more, and half of all homes sold for less.  The median is subject to influence from all sorts of irrelevant factors, including:

1. Home sales of starter homes outnumbering that of luxury homes
2. Home sales in "cheap" markets outnumbering that in "high-cost" markets
3. An uptick in "firesales" or other heavily-discounted homes

And not to mention that the median sales prices of the national market is irrelevant anyway because a nobody buys in the "national real estate market" -- they buy in Blue Ash, Ohio, for example.  Or Lincoln Park in Chicago.  And each of those individual markets have their own forces, separate from what's happening in Sacramento.

If we only read the headline, we'd miss that point and it's why the biggest takeaway from December's Existing Home Sales data is that housing supplies are down in many U.S. markets.  This provides support for home prices and points to a strong Spring Buying Season.  Sellers should be smiling:  Reduced Supply + Constant Demand =  Higher Home Prices. 

And then the cherry: December's data doesn't account for new home buyers since mortgage rates fell late last year.  Judging from the purchase acitvity in my own mortgage practice, I feel that buy-side activity is up in not just my main markets of Cincinnati and Chicago, but everywhere.

If it's true that falling prices bring out the buyers, expect housing strength through early-2009 until the market finds its balance.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.