Some housing bubble news from Wall Street and Washington. "Ryland Group Inc. said late Tuesday it expects to report a second-quarter loss of $1.25 to $1.35 a share. The Calabasas, Calif.-based homebuilder said that due to 'continued deterioration in the housing market,' it expects to incur $145 million to $155 million in pre-tax charges related to inventory impairments and write-offs in the quarter."

"The impairments are associated with assets in Arizona, California, Florida and Nevada."

"Preliminary sales for the second quarter were 2,521 units, down 16.6 percent from the second quarter of 2006. Cancellations were approximately 34 percent of gross orders for the quarter. Preliminary closings totaled 2,461 units in the period, compared to 3,803 units in the second quarter of 2006, a decline of 35.3 percent."

"With headquarters in Southern California, Ryland is one of the nation's largest homebuilders and a leading mortgage-finance company.'

From MarketWatch. "'It is becoming clear that there has been a significant uptick in the cancellation rates among home builders during the June quarter as a result of potential buyers' jitters over the subprime problem and falling home prices,' said analyst Lili Zhang."

From CNN Money. "The slump in home sales and prices will be deeper and last longer than previously expected, according to the latest forecast Wednesday by the National Association of Realtors."

"The trade group is now looking for flat prices for existing homes in the first quarter of 2008 compared to the first quarter of 2007, and a more year-over-year declines for new home."

"The group now sees second-quarter existing home sales falling below the 6 million annual sales pace to a 5.96 million rate. If it is correct, it would be the first time in four years that quarterly sales were below the 6 million home annual sales pace."

"A month ago, the group was forecasting the pace of sales would end the second quarter at a 6.03 million annual rate, and stay above that 6 million threshold through the rest of this year and into 2008."

"'Buyers now have an overwhelming advantage given the wide selection of homes available in many markets,' said Lawrence Yun, NAR senior economist, in the group's forecast statement. 'Local conditions vary considerably, but with historically low mortgage interest rates this summer and sustained job gains, it could be a good time for first-time buyers with a long-term view to test the housing waters.'"

"Paul Kasriel, chief economist with Northern Trust in Chicago, questioned the Realtors' assessment that this is a good time to enter the market, saying weak sales and prices suggest that potential buyers are smart to be sitting on the sidelines right now."

"'No one is buying into their Kool-Aid; that's why prices are falling,' he said. 'It could be that they're going to fall a lot more. The Realtors tend to be overly optimistic. Eventually they'll be right about prices turning around. I don't know when prices are going to stabilize but I suspect they'll fall more than they think this year. It may be a much better time to buy six months or a year from now.'"

"The realtor's press release was headlined 'Home prices expected to recover in 2008 as inventories decline' -- even though the forecast median price for existing homes in 2008 was unchanged from last month's at $222,700."

"The median sales price of an existing home is expected to fall 1.4% this year and rise 1.8% next year. The median sales price of a new home is expected to fall 2.6% this year and rise 2.2% next year."

The Associated Press. "Hours after Standard & Poor's warned that it may cut the credit rating of more than $12 billion in bonds backed by risky home loans, another agency downgraded its rating on hundreds of similar securities."

"S&P and Moody's Investors Service said they made the moves because borrowers are missing mortgage payments at levels much higher than anticipated."

"Lower ratings for mortgage-backed bonds could cause a domino effect that might ultimately strangle what until this year was a major propellent of home prices: easy access to money."

"Moody's lowered its rating on 399 of the bonds, known as residential mortgage-backed securities and said it may downgrade 32 more. All of the bonds were issued in 2006."

The New York Post. "Wall Street is bracing for a nearly $2 trillion washout over the collapse of hollow and shaky mortgage bonds, triggering fears of a recession worse than the dot-com bubble bursting."

"S&P slammed only a chunk of the half-trillion in mortgage bonds it monitors - about 2.1 percent or $12 billion, but said housing prices could crash by 8 percent this year to make matters worse. Moody's downgraded $5.2 billion of mortgage securities."

"Some economists are alarmed that shaky mortgage paper - which could be exposed to be worth barely 60 percent of current purported values - are parked throughout the investment world in mutual funds, hedge funds, financial institutions and other investment pools around the world."

"Analysts say that there could be a wholesale stampede to unload any newly tainted securities, causing a scramble for capital and forcing hedge funds to give back billions to rich investors."

"Meanwhile, the market for the new securities and their recycled derivatives, called collateralized debt obligations, is quickly collapsing, closing the window for underwriters to earn back their money."

"But when the credit rating agencies formally downgrade their mortgage securities later this week, it will force many of CDOs in limbo to be reevaluated for realistic prices that could be as much as 40 percent lower than on the books."

The Street.com. "Bear Stearns is set to offload about $450 million of securities tied to one of its failing hedge funds. The offering consists of securities from a cash collateralized debt obligation tied to a credit from debt backed by subprime mortgages."

"The CDO debt list is peppered with fixed- and floating-rate junk debt but includes primarily securities that carry higher-credit quality as rated by Standard & Poor's and Moody's Investors Service."

"Observers had expected that Bear might call off the offering, given Tuesday's firestorm wrought by Moody's and S&P's threatening to downgrade of billions of dollars' worth of bonds backed by subprime mortgages. Despite the worries, Bear appears set to follow through with the sale. A spokesman didn't return calls Wednesday seeking comment."

From Reuters. "Housing jitters intensified when Standard & Poor's said it may downgrade $12 billion worth of bonds backed by subprime loans, signaling the rating agency's conviction that the future holds more subprime defaults."

"Defaulters will return housing stock to the market, driving home prices down and pinching builders' profits still further, said analyst John Tomlinson of Majestic Research in New York."

"'How much more inventory is going to be put back into the market, when there's already too much inventory already?' Tomlinson said."

"The wave of defaults has caused lenders to tighten credit standards, which in turn reduces the potential pool of first-time buyers, Tomlinson said."

"The reduction in those numbers, combined with a surplus of more affordable inventory, could have a negative effect even on more-upscale builders by leaving real bargains available at the market's lower end and lowering prices generally, said Tim Ghriskey, chief investment officer with Solaris Asset Management."

"'You don't have motivated buyers out there, because pricing was at bubble levels and it's coming down. So they think, 'I can wait a little bit longer, and get lower prices,' Ghriskey said."

"Housing is soft despite favorable interest and employment rates, Tomlinson pointed out. 'If any of those pillars were to fall, the housing market could experience further decline especially because inventories on the new and existing side remain way too high,' he said."

From Bloomberg. "Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps."

"Europe's iTraxx Crossover Index jumped as much as 41,500 euros to 308,000 euros, the biggest daily move since the index was created three years ago, according to JPMorgan Chase & Co. The CDX North America Investment-Grade Index of credit-default swaps on 125 companies increased $2,500 to $50,750, the highest in 19 months, Deutsche Bank AG prices show."

"The Crossover index may rise as high as 400,000 euros because of 'subprimemania,' as well as concern about falling corporate earnings and rising oil prices, Jochen Felsenheimer, head of credit strategy at Italy's biggest bank Unicredit Group, said in a note to investors today."

"'The Goldilocks scenario for credit markets is definitely over,' Munich-based Felsenheimer said. 'These rating actions, the biggest ever in the subprime market, have the potential to trigger an even more substantial move in credit markets.'"

"The credit quality of subprime mortgage bonds fell to a record yesterday in New York. The ABX-HE-BBB- 07-1 index that tracks securities rated BBB- fell 7.4 percent to 51.42, according to the index administrator. The index has declined by almost half since January, reflecting the increased likelihood of default on the underlying securities, which have the lowest investment-grade ratings."

"'People are very nervous,' said Alex Moss, who helps manage $94 billion of fixed-income assets at Insight Investment Management in London. 'There's a lot of concern the selloff in subprime will feed through to the wider market. Until the market finds a floor, it's difficult to see where the buys are going to come from.'"

"The U.S. economy and financial system are in fine shape despite the ongoing troubles in the housing market and subprime lending sector, said Charles Plosser, president of the Federal Reserve Bank of Philadelphia in a speech in London."

"Plosser said the unwinding of the housing boom has led to a slower economy, but not to the bust many had been forecasting. 'It seems unlikely that we will see significant spillover effects on aggregate consumption from the housing sector,' he said. The paper losses that many homeowners have experienced on their home equity 'are likely to have only a modest effect on their consumption patterns.'"

"Plosser spent much of his speech defending the Fed's inaction when the housing bubble was inflating. He, like every other Fed official before him, said the Fed has no business trying to identify and deflate asset price bubbles."

"He worried that any move by the central bank to deflate bubbles would be ineffective or counterproductive. In addition, he said, trying to prick asset bubbles could hurt the central bank's credibility by creating a 'ceiling on rates of return on certain assets.'"

"In fact, the Fed may have the opposite problem, with many critics saying the Fed has created a 'floor on rates of return,' quickly bailing out investors when markets fall by lowering interest rates, a phenomenon widely known as the 'Greenspan put.'"