Sales are down and the market is oversupplied. Any Economics 101 student can tell you that means prices should be falling as well.

But in the San Fernando Valley housing market, something strange seems to be going on.

For more than a year, the monthly reports from the San Fernando Valley Board of Realtors have shown that sales of single-family houses and condominiums have been declining. In August, for example, the board reported that sales plunged 25% from July, bringing the year-to-date total for 1991 down 8% from the same period in 1990.

Meanwhile, there's a glut of properties on the market. In the August sales report, the realty board said the inventory of houses for sale had reached a record high. At the current sales pace, it would take a whopping 14.7 months to sell all the properties now listed.

Yet, seemingly in defiance of both gravity and logic, the average sales price continues to edge upward. So far this year, the average resale price of houses and condominiums is up about 2% over last year's average.

What gives?

The problem, real estate experts say, is that the average price figures don't give a true picture of what's really happening with housing prices.

"It's very deceptive," said Roger Hance, president of R. R. Gable Inc., a Northridge real estate broker.

What's deceptive about the average price is that the figure can easily be skewed upward by a few million-dollar sales--particularly when the pool of houses sold is small. Also, the price data reflect sales closings, which in the real estate world are already considered ancient history.

Despite the increase in the average sales price, real estate specialists say, housing prices have actually fallen about 10% to 15% over the past two years.

Here's what's happening: With the economy in a slump and the aerospace and manufacturing industries downsizing and moving operations out of state, home-buying activity has slowed. But those who are looking to buy can afford to spend a little bit more on a house than they could have a year or two ago because mortgage interest rates are now at their lowest levels in about 14 years.

With so many properties on the market, buyers can also afford to be picky. For the same money, they're getting nicer, bigger houses in better neighborhoods than they would have gotten a few years ago.