Some housing bubble news from Wall Street and Washington. CNN Money, "New home sales posted a surprising drop at the start of the crucial spring selling season in May, the latest sign that the battered housing market could have a ways to go before hitting bottom. The pace of new home sales fell to an annual rate of 915,000 last month, the Census Bureau reported, from April's 930,000 pace, which itself was revised lower."

"Sales...tumbled 15.8 percent from May 2006, marking the 18th straight month of year-over-year declines. The reading was also the weakest performance for May since 2001, before a sharp drop in mortgage rates sparked the housing boom."

"The median price of a new home sold last month slipped to $236,100, according to the report, down 0.9 percent from a year earlier. Yet the drop in prices may be even more severe than indicated, since about three-quarters of builders are offering incentives like free closing costs or extra features at no additional cost in a bid to bolster sales."

From MSNBC. "With sales and prices of new and existing homes continuing a downward slide, it’s too soon to say how much longer the worst housing recession since 1989-91 will last, according to economists and housing analysts."

"'We don't have any experience with this,' said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. 'First of all, this was an incredible housing boom, unlike anything else we've had in our history. The unwinding, the downside of this, with published price declines unlike anything in history, that is the unknown.'"

The Associated Press. "U.S. home prices fell for the 17th month in a row with all regions showing the effect of the housing slowdown, according to a housing index released Tuesday by Standard & Poor's. It was the steepest decline since 1991."

"Boston, Detroit, Phoenix, San Diego and Washington, D.C., showed the greatest year-over-year declines in prices."

From MarketWatch. "'No region is immune to weakening price returns,' said economist Robert Shiller, the co-creator of the index. Even in regions such as the Pacific Northwest or the Southeast, where prices are still rising, the gains have been slowing."

"The Case-Shiller index is considered a superior gauge of home prices compared to the median sales-price data released by the Commerce Department or the National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period."

The Street.com. "Homebuilder Lennar offered little comfort about the state of the U.S. housing market Tuesday, posting much-worse-than-expected results for the second quarter and warning of continued deterioration in selling conditions. For the quarter ended May 31, Lennar recorded a loss of $244.2 million."

"'The housing market has continued to deteriorate throughout the second quarter,' said CEO Stuart Miller in a statement. 'The supply of new and existing homes has continued to increase resulting in declining home prices across our markets.'"

"New orders fell 31% in the quarter from a year ago. Lennar said it had to lower prices to move homes, which cut into margins. Gross margins on home sales slid to 13.6% from 23.7% last year. The price declines led Lennar to record $328 million of land impairment charges."

"'We have continued to adjust pricing to meet today's market conditions,' said CEO Stuart Miller in a statement. 'As we look to our third quarter and the remainder of 2007, we continue to see weak, and perhaps deteriorating, market conditions. Given uncertain market conditions, we continue to lack visibility as to future results, but we currently expect to be in a loss position in our third quarter.'"

"For the second quarter, home deliveries fell to 8,940 from 12,506 a year earlier. The average home price dropped to $298,000 from $322,000 in the year-ago period. To attract uncertain buyers, Lennar said sales incentives averaged $43,700 a home versus $24,700 in the same quarter last year."

"Orders for new homes plunged 31% to 8,056 from the prior year with the cancellation rate running at 29%."

"Lennar has been seen as one of the home builders to react most quickly to the housing bust by slashing prices aggressively to protect sales volume. 'We expect the sequential order deterioration to be even more pronounced for home builders who attempt to limit incentives in the hopes of preserving some margin,' wrote Banc of America Securities analyst Daniel Oppenheim in a research note Tuesday."

"'We've generally seen that buyers are extremely price sensitive, so that the builders with higher incentives receive significantly more order market share.' He added: 'As such, we think that builders who attempt to limit incentives or hold pricing will be forced to adjust their strategy.'"

"'These continue to be very difficult times for the home-building industry,' Lennar CEO Miller said during Tuesday's conference call with analysts. 'Simply stated, the supply of homes available for purchase has continued to climb while at the same time demand has been sharply reduced,' he added."

From Reuters. "'If this is any indication of what to expect from the other home builders when they report results, this quarter is going to be pretty ugly,' said Eric Landry, an equity analyst at Morningstar. 'The next quarter and beyond that it doesn't look too good either.'"

"The chief financial officer of No. 6 U.S. home builder Hovnanian Enterprises Inc. (said) that the market will not significantly recover even in 2008. '08 is probably not going to be a year of strong recovery,' J. Larry Sorsby said at the Reuters Real Estate Summit in New York on Monday. 'Our hope is that it stays no worse than we are today.'"

"Goldman Sachs Group Inc. subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup Inc. research dated June 22."

"Nearly 70 of Goldman's GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded by Standard & Poor's and Moody's Investors Service in the year through June 15, with 60 of those issued in 2006, analysts at Citigroup Global Markets said."

"Benchmark ABX Indexes fell to fresh lows on Tuesday, driving the cost of insuring subprime mortgage securities against default sharply higher, investors and analysts said." "The ABX 07-1 'BBB-' series, which is tied to subprime loans made in last year's second half, sank to 55.70 on Tuesday from 56.18 at Monday's close. The index has fallen 42 percent since it was launched in January."

"'This is a continued sell-off from last week coupled with the weak remittance reports from Monday,' said one investor."

From Bloomberg. "The housing market may deteriorate if there's an 'overreaction' from regulators, said Freddie Mac Treasurer Timoth Bitsberger, a former U.S. Treasury official."

"The fallout will also increase if investors and hedge funds rush to unwind their positions at the same time, he said. The market's 'financial infrastructure' is 'untested' because of the pace of growth in bonds backed by mortgages and other debt, known as collateralized debt obligations, he said."

"'There's a lot of dependency on the ability of the rating agencies to make objective judgments' of the risks backing the bonds, he said. 'I wouldn't be surprised to potentially see a re-rating of these securities.'"

"Bill Gross, manager of the world's largest bond fund, on Tuesday said the subprime mortgage crisis gripping U.S. financial markets was not an isolated event and will eventually take a toll on the economy."

"Gross said there are hundreds of billions of dollars of subprime residential mortgage-backed securities (RMBS), derivatives on subprime RMBS and collateralized debt obligations...all of which he considers 'toxic waste.'"

"'Whether or not they're in CDOs or Bear Stearns hedge funds matter only to the extent of the timing of the unwind,' said Gross, who manages the $104 billion Pimco Total Return Fund. 'To death and taxes you can add this to your list of inevitabilities: the subprime crisis is not an isolated event and it won't be contained by a few days of headlines in The New York Times.'"

"Holders of some investment-grade portions of collateralized debt obligations backed by subprime mortgages will lose all of their money, according to Bill Gross. With subprime loan defaults at 7 percent, buyers of the BBB pieces of CDOs stand to lose their entire investment, said Gross."

"'AAA? You were wooed Mr. Moody's and Mr. Poor's by the makeup, those six-inch hooker heels and a 'tramp stamp,' Gross said in his monthly commentary posted on Pimco's Web site today. 'Many of these good looking girls are not high-class assets worth 100 cents on the dollar.'"

"Defaults on subprime loans will 'grow and grow like a weed in your backyard tomato patch' and if total losses reach 10 percent, CDO slices rated A may also 'face the grim reaper,' Gross said."

"Bear Stearns Cos. is working to bail out two money-losing hedge funds it runs that invested in CDOs backed by subprime mortgage bonds."

"'Those that point to a crisis averted and a return to normalcy are really looking for contagion in all the wrong places,' Gross said. 'Because the problem lies not in a Bear Stearns hedge fund that can be papered over with 100 cents on the dollar marks. The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford and yes, the naked -- and empty -- rows of multistoried condos in Miami.'"