The biggest news in the existing homes release today was buried in the fifth paragraph.

The national housing inventory has risen to its highest level since September, before first-time buyers started rushing to put contracts on houses and beat a November 30 deadline that Congress subsequently extended to April 30. 2010.

At that time, the months’ supply was 8 months. Now it is even higher, at 8.6 months, a reflection that the softer demand we are currently experiencing is moving inventory at a slower pace. Today the months’ supply of homes for sale is higher than it has been since last August. In 2008 the average months’ supply was 10.4.

Total housing inventory at the end of February rose 9.5 percent over January to 3.59 million existing homes available for sale, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.

“The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,” said NAR’s Lawrence Yun. “If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization.”

Early reports from the field suggest that the credit is working, but not nearly at levels that would create a “surge in home buyers” comparable to last fall. Should early indications hold true, today’s healthy inventories may not be absorbed by demand but may swell with normal spring season listings.

The result could be a further fall in values whether or not the long awaited shadow inventory of foreclosed homes makes it to the market.