Some housing bubble reports from Wall Street and Washington. "The pace of activity in building new homes fell in July to the lowest level in nearly two years, adding another piece of evidence indicating a slowing U.S. economy. Housing starts, tracking the nation's rate of construction on new homes, fell 2.5% last month to 1.8 million on a seasonally adjusted annual basis, the Commerce Department said."

"Meanwhile, building permits, an indicator that foreshadows future construction activity, plunged 6.5% to 1.75 million annual units for July. This was the sixth straight monthly decline and the largest drop seen since September 1999. Permits are at their lowest level since August 2002."

"Economists generally agree that the housing market's rolling over. There remains a debate about the magnitude of the decline and its impact of the overall economy. Economist Joel Naroff said it is no longer correct to describe the weakening housing sector as a slowdown. 'Rout' is now the proper word, he said."

"'Things seem to be getting worse. By the end of the year, we will likely be looking at starts off at least 20% and permits 25%. Is that a bubble bursting? You tell me,' Naroff said."

The Globe and Mail. "National Bank Financial economists don't buy the idea that the housing market in the United States is coasting to a soft landing. And they aren't the only ones pointing to the increasingly disturbing statistics on that market."

"Clément Gignac, chief economist and and Eric Dubé, an economist, noted that U.S. housing starts are already down 20.7 per cent from their January, 2006 peak 'and some leading indicators are suggesting more declines are to be expected in the months to come,' they warned."

"These indicators combined with the skyrocketing inventory of new homes for sales are more consistent with a hard landing, rather than a soft landing scenario for the U.S. real estate sector,” the economists said. 'While baby boomers are likely to be forced to scale down their irrational exuberance about home prices appreciation, they should soon feel the need to restore their savings rate,' they added."

"David Rosenberg, economist at Merrill Lynch, referred to data from the National Association of Realtors. It showed that 26 metropolitan areas in the U.S. recorded year-over-year price declines in the second quarter. Moreover, he pointed out that 'an increasing volume of homes are being put up for auction, one sign of an increasingly distressed market.'"

"Also this week, the Wall Street Journal published a chart showing the percentage of listed homes in various markets across the U.S. whose prices had been reduced as of Aug. 2. Boston topped the list; 46.4 per cent of the houses listed for sale in that area have had their prices cut. Sacramento, Orange County and San Diego, all in California were the next three on the list."

"'That we are seeing price quotes coming down in areas like Baltimore and Minneapolis is a sign that, contrary to popular opinion, the mania in residential real estate this cycle was more national than local in scope,' Mr. Rosenberg said."

"Residential loans that have raised eyebrows at the Federal Reserve and other regulators are increasing in popularity with lenders as a way to buoy profits in a shrinking market."

"So-called payment-option adjustable-rate mortgages have become popular in the $10 trillion U.S. home-loan market as borrowers facing high prices try to lower early payments at the risk of later payment shocks."

"'Option ARMs are the best-executing product in the market right now, despite the market noise,' said Brad Morrice, CEO at Irvine, California-based New Century Financial Corp. At Countrywide Financial, margins on sales of loans to the secondary market increased in the second quarter, 'with pay-options playing a significant role,' it said in its earnings report."

"Still, pay-option loans may not always command high prices. Ratings companies last year started requiring issuers to spend more on credit enhancements on bonds backed by the loans. 'We perceive a need for more credit enhancement that a lot of these deals are getting done with,' given chances for payment shock, said Glenn Costello, at Fitch Ratings. Investors appear to have a 'disconnect' with the risks involved, he said."

"The credit make-up of pay-option ARM borrowers is eroding, Costello said. While the average borrower had a credit score near 740 a few years ago it is now closer to 700, he said. Credit scores range from 300 to 850, worst to best. New Century's Morrice conceded that mortgage loan defaults may rise."

The Associated Press. "A member of the Federal Reserve's policy-making arm said yesterday that inflation is gaining momentum, making it impossible to say whether the Fed is done raising interest rates."

"Richard Fisher, president of the Federal Reserve Bank of Dallas, believes the previous rate hikes are beginning to tamp down inflation but that no one can tell when their full impact will hit. 'If anybody tells you with absolute conviction that the Fed is done raising interest rates or with equal conviction that they have only paused..they are only guessing,' Fisher said."