IT'S BEEN POSSIBLE OVER THE LAST SEVERAL months to pick up one newspaper and learn that the housing market's boom continues, only to read a headline somewhere else declaring proof of a bursting bubble. We're told that prices and sales are up, but so are inventories, and confidence among both consumers and builders is down.

It's tough to sort out the real story of today's market through the seemingly conflicting reports. Can it all be true?

Yes, for a short time. Housing is starting to retreat from its peak, which Freddie Mac chief economist Frank Nothaft says it hit over the summer. Monthly data have begun to reflect a downward trend, but quarterly and annual data still factor in the spring and summer's outstanding performance.

When the books close on 2005, it will have been yet another record-breaking year. But a number of economists say a shift toward a cooler market started in mid-September. Brian Carey, an economist with, says the higher mortgage rates were the first factor to slow housing down. He's seen proof of the cooldown in the Mortgage Bankers Association's weekly loan applications survey, which reported that mortgage applications for purchase were down 7 percent over the last two months.

Local newspapers have focused on rising inventories of homes for sale and a decline in median sales price as proof of market trouble. But in many markets, inventories started from all-time lows, and sales often slow down in the fall and winter months. In California, sales remained strong in September, but the median price fell, says Robert Kleinhenz, deputy chief economist for the California Association of Realtors. That's a common pattern—the last few years just haven't been common. “It's done that for 20 of the last 26 years,” he says.

And though the media are quick to report big shifts in monthly housing data, trends over several months are more reliable. “Before anyone declares that the housing market is crashing, I would like to see two or three months of data moving in the same direction,” Nothaft says.

Finally, some reports might make it seem that every housing market is faltering, but business continues to boom in many parts of the country. “We're not seeing any slowdown, certainly in 2005, and from builders I've talked to, we don't anticipate any slowdown in 2006,” says Mark Baldwin, executive vice president of the HBA of Charlotte, N.C. “Every little hitch in rates will slow things down a little bit, but even if it were to slow down 5 percent, [2006] would be a great year.”