Some housing bubble news from Wall Street and Washington. The Associated Press, "Construction of new homes posted a small gain in April but applications for building permits plunged by the largest amount in 17 years, a dramatic sign that the nation's housing industry is still in a steep slump. Even with the improvement, housing construction is 25.9 percent lower than a year ago."

"And in a worrisome sign for the future, builders cut their requests for new construction permits by 8.9 percent in April. That was the sharpest drop since a 24 percent fall in February 1990, another period when housing was going through a significant downturn."

From CNN Money. "Home builder confidence fell for the third straight month in May and executives in the battered sector now believe they'll have to wait until next year for even a sluggish recovery to begin, according to an industry survey released Tuesday."

"The survey by the National Association of Home Builders saw the confidence index sink to 30 in May from 33 in April, matching the September reading that had been a 15-year low at that time."

"The subindex measuring builders' view of current market conditions fell to the lowest level since February 1991, while their view of the market six months from now and their perception of buyer demand both dropped to match the 15-year lows hit in late 2006."

"'The crisis in the subprime sector has infected other parts of the mortgage market as well as consumer psychology, and as a result the housing outlook has deteriorated,' David Seiders, the builders' chief economist, said in a statement."

"'We're now projecting that home sales and housing production will not begin improving until late this year, and we're expecting the early stages of the subsequent recovery to be quite sluggish,' he added."

From Bloomberg. "'It's going to take more time' than previously expected to shake off the housing recession, Seiders said last month. Subprime woes are costing builders 'a lot of sales and also increasing cancellations.'"

"'The decline in homebuilder sentiment is largely due to fears of subprime mortgage fallout,' said Michelle Meyer, an economist at Lehman Brothers. 'We could see a decline in demand going forward.'"

"The NAHB/Wells Fargo index of sentiment fell to 30 this month from 33 in April, the Washington-based association said today. The reading matched the figure for last September, which was the lowest since February 1991. Readings below 50 means most respondents view conditions as poor."

"The measure of single-family home sales declined to 31, the lowest since February 1991, from 33. The index of traffic of prospective buyers fell to 23 from 27. A gauge of sales expectations for the next six months declined to 41 from 44."

"Builders are scaling back new projects to work off new-home inventories that in March equaled 7.8 months' worth of sales, the second highest since March 1991."

The Telegraph. "Spain's foreign reserves have plummeted to wafer-thin levels, leaving the country exposed to a possible banking crisis if the property market swings from boom to bust, despite membership of the eurozone."

"Total reserves have now fallen by two thirds from €41.5bn in early 2002. Greece and Portugal have seen a similar drop."

"'The current account is completely out of control,' said Alberto Mattelan, an economist at Inverseguros in Madrid."

"'We have the worst deficit in our history and worse than any other country in the western world. It has not yet become a 'street concern,' but I can assure you that it is of great concern to us economists. This will turn bad over the next 18 months,' he said."

"'Where this gets serious is if there is a property collapse in Spain and the banks get into trouble,' said Prof Tim Congdon, an expert on monetary policy."

"The first signs of a housing slump are emerging as the ECB raises interest rates, already up seven times to 3.75pc since December 2005. The shares of Valencia builder Astroc have fallen 77pc since February, setting off a sharp slide across the sector, with knock-on effects on banks with mortgage exposure."

"The party is ending after a near tripling of house prices since 1995. In a report, Jamie Dannhauser from Lombard Street Research, said Madrid is now making matters worse with a new law to hit property speculators."

"'This screams of closing the stable door after the horse has bolted. House price growth has clearly peaked and is decelerating quickly,' he said."

From John Berry. "As 2006 began, the core consumer price index was rising at a 2.1 percent annual rate, and then it took off, peaking at 2.9 percent in September. By last month, the rate was back to 2.3 percent, the Labor Department reported yesterday."

"Last year's acceleration was due to a series of large monthly increases in rents and a separate part of the CPI called owner's equivalent rent. Fed Chairman Ben S. Bernanke and many analysts said the sudden jump in both measures of rental costs occurred when would-be home buyers decided to rent instead of buy as housing prices began to fall last year."

"The resulting increase in demand for rental units allowed landlords to raise their prices sharply. Now the shoe may be on the other foot."

"Owner's equivalent rent, which carries the greatest weight of any item in the core CPI, rose at only about a 3 percent annual rate in the six months ended in April. That's down from a 4.6 percent rate in the six months ended last September."

"Brandeis University economist Stephen G. Cecchetti said yesterday that last year he 'was warning that rises in OER would eventually push core inflation over 3 percent. Well, that hasn't happened.'"

"At that time, Cecchetti said, he thought that years of rapid increases in home prices had so outstripped the change in rents that once house prices stopped rising, it would take years of rent increases to close the gap."

"'What I failed to see was that the combination of a high inventory of unsold new homes, combined with increased mortgage defaults could flood the rental market,' he said. That glut 'is holding OER down now and is likely to continue to do so in the foreseeable future. The result will be falling CPI inflation,' Cecchetti predicted."

"Ohio Attorney General Marc Dann, likening the subprime lending industry to armed robbers, said he wants to sue Wall Street firms because their bond sales enabled consumers to get mortgages they couldn't afford."

"'If somebody was buying guns and giving them to people to go and take people's houses at gunpoint in Ohio, we'd be prosecuting them and throwing them in jail,' Dann said."

"Securities firms encouraged 'irrational loans' to be made, Dann said, by providing a liquid market in which mortgages were bundled by the thousands and sold as securities."

"'I want to see the e-mails, I want to see the documents,' he said. 'I'm guessing somebody at some or all of these places was predicting the bottom was going to fall out.'"

"The state may seek damages from mortgage companies and investment banks even for 'purely criminal' situations in which borrowers committed frauds against lenders, Dann said. He cited the harm such schemes did to communities that could have been prevented if lenders had been more cautious."

"'My clients are certainly taking Marc Dann's comments extraordinarily seriously,' said Richard Gottlieb, a partner in Chicago at Dykema Gossett PLLC, which represents firms involved in home lending and securitization, including Irvine, California- based New Century."

"Savings and commercial banks with federal charters are protected against state regulators, and charges against other lenders probably will fail, too, Gottlieb said. Still, attorneys general often 'gain most of their leverage through the desire to avoid bad press,' he said."

"Lehman Brothers Holdings Inc., Countrywide Financial Corp., Morgan Stanley, and Merrill Lynch & Co. were the top sponsors of subprime-mortgage securitizations last year, according to newsletter Inside B&C Lending."

"'The question is who benefited from this that still has money,' Dann said, adding he's also weighing suits against 'four or five' more subprime lenders."

From Reuters. "Ohio's attorney general said on Tuesday he won't hesitate to file civil racketeering charges against Wall Street investment banks if his investigation finds they had a hand in fraudulent subprime lending."

"'We're going to try to find a way to hold them accountable,' Dann said."

"He said one legal strategy he might pursue is using the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Act, which was formulated to fight organized crime. The act allows for civil claims to be filed, too, to allege fraud. 'We'll take the case where the evidence leads us,' Dann said."