Some housing bubble reports from Washington and Wall Street. "The Federal Reserve Bank held overnight interest rates steady at 5.25% for the fourth straight meeting on Tuesday and kept the door open for further rate increases, saying inflation risks remain elevated despite a substantial cooling in the housing market."

"In one of two subtle changes, the committee said growth had slowed, 'partly reflecting a substantial cooling of the housing market.' The word 'substantial' is new to the statement."

"Fannie Mae, the biggest U.S. mortgage finance company, sued former auditor KPMG LLP for $2 billion today, saying the accounting firm failed to serve its role as an independent watchdog and prevent $6.3 billion in accounting errors."

"Fannie Mae was repeatedly a victim of KPMG's conflicting role as consultant and auditor, Fannie Mae said. 'Replacing KPMG's 'consulting engagement' hat with its 'auditor' hat, KPMG approved Fannie Mae's' bookkeeping each year, Fannie Mae said. 'KPMG often did nothing more than rubber-stamp Fannie Mae's internal accounting decisions.'"

"'KPMG engaged in a 'check the box' approach to its audits, failing to exercise professional judgment and independent scrutiny,' the suit alleges. KPMG spokesman Tom Fitzgerald said the company plans to pursue its own claims against Fannie Mae as part of pending litigation in federal court."

"James Cox, a professor of corporate and securities law at Duke University Law School, said the company will have a difficult time proving that it was harmed more than investors who bought Fannie Mae shares at inflated prices when it was overstating its earnings."

"Cynthia Williams, a professor at the University of Illinois College of Law in Champaign, agreed and said Fannie Mae blaming its own misstatements on KPMG is unusual and 'you have to ask: 'Where were they?'"

"Median house prices will decline by 8% to 10% over the next nine months and could create a serious drag on the economy, according to Allen Sinai, president of Decision Economics. Even if the downturn in sales and construction is over early next year, there will be a huge inventory of unsold homes overhanging the housing market, Mr. Sinai told a housing symposium hosted by the Office of Thrift Supervision."

"'[M]edian prices of new and existing homes likely will continue to decline, particularly prices in those parts of the United States that have been bid up to unsustainable levels,' the economist said."

"Some mortgage companies continue to see weaker housing. The real estate market hasn't yet bottomed out, Wells Fargo CEO Richard Kovacevich said in an interview. About a fifth of the 375 metropolitan statistical areas in the country have had home price decreases of 20 percent, he said."

"'It's pretty ugly at the moment,' Kovacevich said. Home prices are 'really down much more' than recent economic reports suggest, he said, citing the company's internal data."

The Wall Street Journal. "The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study by the Realtors group, down from 40% in the three previous years."

"In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent NAR survey, up from 43% a year earlier."

"Jason Colon bought a new three-bedroom, 2½-bath townhouse in Apollo Beach, Fla., last month. Mr. Colon paid $163,000 for the property, which was originally priced at $242,000. The builder also picked up $5,000 of his closing costs."

"Yet affordability remains a problem for many would-be buyers. In the second quarter, buyers had to stretch more than ever before in 25 of the top 50 markets, according to Bank of America analyst Daniel Oppenheim. Even with the recent price declines, he estimates that it would take a further 7% fall in home prices, combined with a 4% annual increase in nominal incomes, to bring affordability back in line with average levels over the past decade by 2008, if interest rates remain stable."

"Many would-be buyers are taking a wait-and-see approach. When home prices were soaring, many first-time buyers jumped to buy houses they could barely afford, believing they would be shut out of the market if they didn't act quickly. Now, with prices falling in many areas, 'there's no immediate need to buy, and so they kick the tires more,' says Frank Borges LLosa, owner of a brokerage in Arlington, Va."

"Arthur Orkisz, a speechwriter in the Washington, D.C., area, says he expects to hold off until at least next summer before buying his first home. Giveaways such as flat-screen TVs are 'all nice and dandy, but at the end of the day anyone capable of doing the arithmetic realizes that's a gimmick to get me in the door,' he says. 'That's not enough of an incentive' to buy."

"In much of the country, renting remains a bargain compared with owning, according to an analysis prepared for The Wall Street Journal by Torto Wheaton Research, a unit of CB Richard Ellis Group Inc. In markets such as Las Vegas, San Diego and Washington, the monthly cost of renting the average apartment is roughly half what it would cost to own the median-price home in the third quarter."

"'Renting is only marginally less of a bargain' even with the latest decreases in home prices, says Torto Wheaton senior economist Gleb Nechayev."