Sales of Existing Homes Fall

With the caution that this is a single monthly data point, sales of previously owned homes fell, a potential sign of a cooling market. The fall would have been larger without increases in sales brought about by Katrina:

Existing Home Sales Dip, Prices Climb, by Martin Crutsinger, AP: ...The National Association of Realtors reported Monday that sales of existing homes and condominiums declined by 2.7 percent last month ... The decline would have been an even larger ... without a spurt in sales in areas where people displaced by the Gulf Coast hurricanes have moved. ... Even with the decline in sales, the median price of an existing home sold last month rose by 16.6 percent to $218,000 compared to the median  ... price in October 2004. ... Those price increases have contributed to a rise in mortgage rates [I misread this - the article meant the rise in energy costs induced a rise in interest rates.]

One part is puzzling. An increase in prices is not consistent with an increase in long-term interest rates and a decline in demand. Help me out - why are prices going up if the market is weak and long-term rates are inching upward? Is it just price inertia? [See also Bloomberg, NY Times, CNN/Money, Financial Times, and the WSJ (AP report)] [NAR Report]

Update: See Calculate Risk who, of course, has this covered.