Some housing bubble news from Wall Street and Washington. Inman News, "The same forces that built up the housing boom also played a major role in its drop-off, according to the latest annual housing market report by Harvard University's Joint Center for Housing Studies."

"'Except in the few areas facing real economic distress, this housing downturn has been driven largely by the market’s own excesses. Chief among these is the oversupply of homes triggered by inflated demand from investors, second-home buyers and others intent on getting in on rapidly appreciating prices,' according to 'The State of the Nation's Housing' report."

"It is uncertain when the real estate recovery will begin, the report states. 'Now that the downturn is in full swing, the question of duration hangs over the market.'"

The Boston Globe. "The median price of a single-family home in Greater Boston has dropped 3 percent in the current slowdown, to $402,200 in 2006. At that price, a house costs 5.4 times the median household income of $74,773 for the region. The standard for affordability is 3 to 3 1/2 times median household income, according to the Harvard center."

"'It is becoming increasingly clear that the market will not return to a day where everyone who worked could afford a place to live,' said Nicolas Retsinas, director of the center."

"House prices would have to fall a dizzying 35 to 44 percent, to the $224,000-to-$262,000 range, before being affordable to a broad swath of the population, as they were in the mid-1990s in the aftermath of the previous housing-market correction."

The Boston Herald. "'I think the message here is as long as they don’t have to sell their homes (they haven’t lost their jobs) they can wait it out and at some point, the underlying demand for housing will return and they will do OK,' Retsinas said. 'I think this was a wake-up call. At the base of this is that homes are for living in, not investing in.'"

"The question of making homes and apartments more affordable, he said, is complex."

"'It’s not just the cost of housing; it has to do with wages and the disconnect between the labor market and the housing market. By that I mean, in our economy, the fastest growing jobs are often in the service sector, which traditionally has paid lower wages,' Retsinas said. 'We’ve got to find a bridge between the labor market and the housing market. I’m not recommending anything, but to extrapolate, it means that one of the parties that needs to get engaged in the issue of affordable housing is employers.'"

"According to the report, 'the problems in the housing market put an end to the big lift that the economy enjoyed since the 2001 recession....Though builders cut back on housing starts, the number of vacant homes for sale rose by more than 500,000 from the fourth quarter of 2005 to the fourth quarter of 2006 and continued to rise in the first quarter of 2007.'"

"'Until some of the excess inventory is absorbed by the demand cycle and credit conditions stabilize, housing will continue to struggle and home prices will fall in more areas,' the report said."

The Toll Brothers Form 10-Q. "Net income in the six-month and three-month periods ended April 30, 2007 was $91.0 million and $36.7 million, respectively, as compared to $338.8 million and $174.9 million in the comparable periods of fiscal 2006."

"We recognized $216.6 million and $119.7 million of inventory write-downs in the six-month and three-month periods ended April 30, 2007, respectively."

"Our backlog of $4.15 billion at April 30, 2007 decreased 32% compared to our backlog of $6.07 billion at April 30, 2006. Backlog includes the value of homes under contract but not yet delivered to our home buyers."

"Beginning in the fourth quarter of fiscal 2005 and continuing throughout fiscal 2006 and into the third quarter of fiscal 2007, we have experienced a slowdown in new contracts signed. We believe this slowdown is attributable to a decline in consumer confidence, an overall softening of demand for new homes, an oversupply of homes available for sale, the inability of some of our home buyers to sell their current home and the direct and indirect impact of the turmoil in the sub-prime mortgage loan market."

"We attribute the reduction in demand to concerns on the part of prospective home buyers about the direction of home prices, due in part to many home builders' advertising price reductions and increased sales incentives, and concerns by the prospective home buyers about being able to sell their existing homes. In addition, we believe speculators and investors are no longer helping to fuel demand."

"Non-speculative buyer cancellations are also adding to the supply of homes in the marketplace. In the six-month and three-month periods ended April 30, 2007, home buyers cancelled 828 contracts and 384 contracts, respectively, or approximately 24% and 19%, respectively, of the gross number of contracts signed in the respective periods."

"In the comparable periods of fiscal 2006, homebuyers cancelled 371 contracts and 205 contracts, or approximately 9% of gross contracts signed in each of the periods. In the quarter ended October 31, 2006, homebuyers cancelled approximately 37% of the gross contracts signed."

The Financial Times. "In a new report, Standard & Poor's says if the UK housing and mortgage markets weaken, it believes lenders with high exposure to specialist mortgage lending could feel the impact."

"S&P pinpoints subprime mortgages as a 'new and untested' part of the UK market where if there were problems 'the scale of potential losses could be high.' although it acknowledges that the market differs from that of the US, partly because the relaxation of lending criteria has been 'less severe.'"

"Nonetheless, lenders offering subprime mortgages were keen to increase market share as profit margins are attractive and 'credit standards are under pressure.'"

The Contrarian Chronicles. "This week I'll turn my attention to those who have been gullible enough to buy the sliced-and-diced mortgages that found their way into collateralized debt obligations (CDOs) and other exotica."

"At a recent presentation to pension managers, a Bear Stearns shill described the bottom rung of the CDO ladder as follows: 'It has a very high cash yield to it...I think a lot of people are confused about what this product is and how it works.'"

"At the presentation, she likened CDOs to financial institutions in terms of having strict oversight: 'The outside agencies that oversee these structures are the rating agencies,' she said."

"However, her comment drew the following from Gloria Aviotti, managing director of global structured finance for rating service Fitch: 'It's not accurate. We don't provide any oversight.'"

"That view was echoed by Yuri Yoshizawa, group managing director of structured finance at another rating service, Moody's Investors Service: 'It's a common misperception,' he said. 'All we're providing is a credit assessment and comments.'"

From Bloomberg. "American International Group, the world's largest insurer, will help subprime borrowers keep their homes in a deal with regulators who said the company's banking unit had made inappropriate loans."

"AIG will add as much as $50 million this quarter to the $128 million it previously set aside to administer new, more affordable loans, refund fees and hire a consultant to reform mortgage policies, Kevin Petrasic, a spokesman with the U.S. Office of Thrift Supervision, said Friday."

"'Loans were made based on underwriting criteria we didn't think were sufficient,' Petrasic said. 'We've directed the institution to identify borrowers who were put into loan products that were inappropriate for them and to refinance the loans.'"

"The loans covered in the agreement with AIG were mostly adjustable rate mortgages, Petrasic said. They were originated from July 2003 through May 2006 by Wilmington Finance, which is owned by AIG."

National Mortgage News. "I recently asked my broker contact how the Long Island market was holding up. This is what he wrote: 'Not good at all is the right answer....I can't wait for these mortgage companies that advertise 1% mortgages to disappear. The ads are clearly misleading and the reps never adequately describe the downside of neg-ams.'"

"'Option ARMs are appropriate for a small portion of the market and clearly inappropriate for anyone looking for long-term predictability in their mortgage payments. The next time a bank blames the mortgage broker for the foreclosure mess now looming let's remind them of the wholesaler ads touting 4.5% YSP.'"

"The biggest rout in the Treasury bond market in three years is making Wall Street's bond bulls more bearish. Investors are 'throwing in the towel,' said Robert Auwaerter, who oversees about $350 billion as head of fixed- income investments at Vanguard Group."

"'Momentum could be toward even higher yields in the next couple weeks,' said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG's Private Wealth Management unit. 'If rates rise overseas, they will become competitive for the U.S. and therefore rates here have to rise.'"

"Bill Gross, manager of the world's biggest bond fund, is sticking with his forecast for the Federal Reserve to lower interest rates in a 'schizophrenic' market."

"'We're having a housing bust,' said Gross. 'To the extent that continues based on these higher interest rates and economic growth stays weak, inflation is a little lower and ultimately the Fed may lower six months down the road.'"