Purchases decreased 17 percent, the biggest decline since records began in 1968, to a 5.45 million annual rate from 6.54 million pace the prior month, the National Association of Realtors said today in Washington. The median sales price increased for the first time in two years, reflecting fewer first-time buyers, the group said.

Worst decline on record. Hear that? Panic.

Don’t continue to read about the fact that this was due to the original expiration date of the first time homebuyer credit. Under no circumstances should you read at CalculatedRisk that December is always a big decline month. Also ignore the fact that the numbers are still an improvement over last year (that’s not a big accomplishment, but I’ll point it out anyway).

Once again, we have an alarmist headline that isn’t really news (headlines elsewhere are scarier, but this was a better article). The question is: Where do we go from here? On that note, I’m my usual pessimistic self. There’s a big known supply hanging over the market, but there’s a bigger unknown supply. This so-called shadow inventory is estimated to be large, but the actual estimates are all over the place. People are waiting for the market to recover before they put their homes on the market. Banks are restricting foreclosure activity (this is true even though foreclosure activity is at historic highs). Worse, another wave of defaults due to Option ARMs is on the horizon. Add these all up, and I think the GDP growth, future jobs growth, low interest rates, tax credits, etc. are going to prove insufficient for a proper housing recovery over the next year.