It may still have to get worse before it gets better, but the residential real estate market shows signs that demand is building and home values may start recovering in 2008.

It seems there's bad news for the housing market every day. More mortgage resets coming in the next year, tightening lending standards and a glut of homes on the market all point to sinking home values in the near future. And economists have differing opinions on when a recovery might happen.

The National Association of Realtors recently reported that existing single-family home sales dropped 8.6 percent to a seasonally adjusted annual rate of 4.38 million in September, compared to a pace of 4.79 million in August. That rate is 19.8 percent below the 5.46 million-unit pace from September 2006, and the median existing single-family home price was $210,200 in September, down 4.9 percent from the same time last year.

But there is some encouraging news. Lawrence Yun, chief economist for the National Association of Realtors, or NAR, believes that home values may start recovering next year because significant demand has been accumulating. He says that prices actually continue to trend upward in the Northeast, Midwest, throughout the condo sector and in areas that are not dependent on jumbo loans. Running counter to