Some housing bubble news from Wall Street and Washington. "M/I Homes, Inc. homes delivered in 2006's fourth quarter were 1,363, decreasing 16% from 2005's record-high 1,616. New contracts for the twelve months ended December 31, 2006 were 35% below 2005's. The Company experienced a 63% cancellation rate during the fourth quarter of 2006."

"Robert Schottenstein, CEO, commented, 'Conditions in most of our markets remained difficult throughout the fourth quarter. Although new contracts on a gross basis reached 953 homes for the quarter, the impact of our 63% cancellation rate resulted in new contracts declining 61% for the quarter and year-end backlog units declining 46% compared to December 31, 2005.'"

"Mr. Schottenstein, concluded, 'For the past six months, we have consistently stated that housing conditions are likely to remain challenging throughout 2007 and we see no reason to deviate from that belief. We are confident that our defensive operating strategy will serve us well as we navigate through these difficult times.'"

"The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Tampa, Orlando and West Palm Beach, Florida; Charlotte and Raleigh, North Carolina; Delaware; and the Virginia and Maryland suburbs of Washington, D.C."

From MarketWatch. "Despite contentions that the housing market is forming a bottom, 2007 will see 'a continuation of the challenging operating environment' for home builders, wrote Raymond James & Associates analyst Rick Murray in a report Wednesday."

"'Our fundamental outlook is one of caution, believing that the slowdown is likely to be longer in duration and more difficult than many are forecasting based on inventory levels that are stubbornly high and home prices that are broadly unaffordable,' he said."

"Many residential builders are also taking charges on real estate holdings that have fallen in value, and as they write off land options they've decided not to pursue. 'Since we think home-price declines will continue to pressure earnings, 2007 write-downs could equal 5% to 6% of equity written off in 2006,' wrote Deutsche Bank analyst Nishu Sood, estimating that impairments are likely only half-way done."

"There could also be an upcoming 'spike' in impairments for builders set to report financial results after wrapping up their fiscal years at the end of December, 'due to the added rigor of year-end accounting reviews and the desire to minimize next year's fiscal write-offs,' Sood added."

From Inman News. "Private-label, subprime mortgage originators will have a more difficult time selling Wall Street investors risky loans in 2007, experts say, even as they face tougher underwriting and disclosure standards from regulators."

"'After every good party there's a hangover,' said Amy Crews Cutts, deputy chief economist at Freddie Mac. 'We've seen a huge boom in mortgage-related employment, including Realtors.'"

"In the last weeks of 2006 several subprime lenders were closing their doors because of financial difficulties. Kenneth Rosen, of the University of California, Berkeley, said the problem is real, and subprime loan originators and the investors who financed them are to blame."

"'Subprime loans, for the last and early part of this decade, were 2 percent of the market,' he said. 'Then all of a sudden it became 15 percent of the market because you could securitize them through Wall Street. People who normally wouldn't meet the criteria were approved for loans. It was a sure thing there would be substantial delinquencies and foreclosures.'"

"'It's a way some borrowers, and some mortgage lenders used to get people into homes they had no ability to afford,' Crews Cutts said of such 'low doc' or 'no doc' loans that require little or no proof of income. 'There are some really scary products out there. We're going to see a crackdown in non-documentation mortgages -- you are going to have to show a W-2 or at least income.'"

"Federal Reserve Board Vice Chairman Donald Kohn says a 'stabilization' that seems to be taking place in the housing market may be vulnerable to a rise in long-term interest rates, or even a decision by the Fed not to lower short-term interest rates."

"Kohn said housing prices are still high relative to rents and that inventories of unsold homes have only started to edge lower. 'Uncertainty about where we stand in the housing cycle remains considerable,' Kohn said. One reason for the uncertainty, Kohn said, is that the downturn 'was not triggered by a restrictive monetary policy and high interest rates.'"

"The downturn did follow 'an unusually large run-up' in housing sales, construction and prices. 'Our uncertainty about what pushed home prices and sales to those elevated levels raises questions about how the market will adjust now that expectations of the rate of house-price appreciation are being trimmed,' Kohn said."

"Kohn said housing starts 'may be not very far from their trough, but the risks around this outlook still are largely to the downside.'"

"It's unknown, Kohn said, if 'the possible stabilization that seems to be taking hold would be immune to a rise in longer-term interest rates should term premiums increase or the federal funds rate fail to follow the downward path currently built into market expectations.'"

"It is still too soon to say rising prices no longer pose a threat to the economy, the President of Federal Reserve Bank of Chicago said today. Michael Moskow said the unemployment rate, now at 4.5 pct, is about at the bottom of the range of the so-called 'natural rate' of unemployment."

"'This suggests that we need to be vigilant for the possibility of increases in inflationary pressures,' he said. And he said the Fed has to be worried about inflation expectations, which can cause actual inflation to rise."

"'If firms and workers expect inflation to be high, they will want to compensate by raising prices and wages or building in plans for automatic increases,' he said."

The Associated Press. "An expected dampening of the world economy in 2007 after three years of healthy growth has the weakening U.S. housing market primarily to blame, a U.N. flagship economic report said."

"The waning U.S. housing market is a 'major factor' in the slackening economic prospects, the report said. The end of the housing boom is expected to depress U.S. consumer demand, slowing the growth of the country's economy, it said."

"'The economic recovery in Japan and Europe is not strong enough to replace the U.S. as the engine for growth of the world economy,' the report said."

"A continued widening of the U.S. deficit could erode 'confidence in the dollar as the world's main reserve currency,' the report warned. The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, 'enhancing the risk of a major upheaval in financial markets.'"