Housing statistics reported by the Commerce Department this morning show a continued implosion of the real estate bubble of recent years.

Existing home sales fell 8% in September to an annual rate of 5.04 million versus a Bloomberg survey of 5.25 million representing a drop of 4.5%.

The median home price is down over 4% from a year ago, with single family homes down almost 5%, the biggest decline since the government started keeping track about 40 years ago.

Inventory rose to over 10 months supply.

Here's how my friend Brian Wesbury analyzes the report:

Today’s numbers on existing home sales are ugly. For the past two months the decline in existing home sales has occurred in every major region of the country and nationwide sales are now the lowest in about nine years. It would take 10.2 months at the current sales rate to clear the inventory of single-family existing homes on the market today – the highest in about 20 years. Given this high level of inventory, prices have been dropping, with the median price of an existing single-family home down 4.9%, a record 1-year decline. The question is whether all of this is due to some fundamental problem with the economy or if it is industry specific. We believe the latter. Because of extremely low interest rates between 2002 and 2005, and unbelievably lax lending standards, housing activity soared above anything justified by the underlying fundamentals of demographics, jobs and incomes. For this, the housing market must pay a price and it may undershoot in the months ahead, pushing sales down to levels not seen since the mid-1990s during more normal times. One offset to today’s weak data is the fact that existing home sales are counted at closing, so September sales were for contracts signed in July/August – at the height of the credit crisis. Tomorrow’s data on new home sales will reflect contracts signed in September and will be a more reliable indicator of current activity.

I have told Brian repeatedly for the past year or more that I think he's far too optimistic about housing and about its impact on the economy. I think the impact will be real and substantial.

As far as tomorrow's number, its hard to put much stock into the new home sales number since they're such a small part of the overall market. However, if I had to guess, I bet those numbers come in much worse than expected as well.

[Update from today: The new home sales number was right on the Bloomberg survey, but the August numbers were revised downward substantially. In the 15 minutes after the number came out, there was about a 70 point jump up in the Dow Jones, but the market gave up all those gains and more in the next 90 minutes.]

Between the housing numbers, the report by Merrill Lynch of loan losses, anecdotal stories of credit problems seeping into the auto market and other non-real-estate areas, it's not surprising that Fed Funds futures are now pricing in a real chance of a 50 basis point cut by the Fed on October 31st.

I love Brian's optimism, but I don't share it....