Some housing bubble news from Wall Street and Washington. MarketWatch, "Inventories of unsold single-family homes increased 2.2% to 3.85 million in July, sending the inventory in relation to sales to the highest level in 16 years, the National Association of Realtors reported Monday. Sales were down 9% compared with a year earlier. The results were the slowest since November 2002."

"Inventories of single-family unsold homes represented a 9.2-month supply at the July sales pace, the highest since October 1991. For all homes, the inventory rose 5.1% to a record 4.59 million, representing a 9.6-month supply. Condo inventories surged 20% to 742,000, an 11.9-month supply at the July sales pace."

"Inventories typically fall in July, said Lawrence Yun, senior economist for the real estate trade group. The inventory figures are not seasonally adjusted. 'The inventory is very high,' Yun said, adding that rising foreclosures might be increasing levels of inventories by 5% to 7%."

"'These data reflect conditions prior to the financial market volatility of August,' wrote John Ryding, chief U.S. economist for Bear Stearns."

"Yun said the market is holding on despite temporary mortgage disruptions. 'Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months,' he said. 'Some buyers with contracts have been scrambling when loan commitments did not materialize at the last moment, while other potential buyers are simply waiting for the mortgage market to stabilize.'"

From Bloomberg. "The median price of an existing home dropped 0.6 percent in July from a year ago to $228,900, the Realtors group said."

"'We continue to wrestle with the interrelated challenges of softer demand and excess housing supply in most markets,' Toll Brothers Inc. CEO Robert Toll said on a conference call Aug. 22. 'Traffic is pretty stinky out there.'"

The Associated Press. "Bad credit has supplanted terrorism as the gravest immediate risk threatening the economy, a key national research group reported Monday."

"Borrowers' withering ability to pay their bills and the subsequent fallout in the credit markets this summer topped the list of short-term risks on peoples' minds, according to a survey of 258 members conducted by the National Association of Business Economics."

"The tumult in the financial markets has led businesses to revisit their interpretation of the housing boom earlier this decade and the easy credit that fueled it, NABE said. The proportion of surveyed members who call it a 'serious national bubble' more than doubled from two years ago to 29 percent, the group said."

The New York Times. "On its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. 'I want to be sure you are getting the best loan possible,' the sales representatives would say."

"But providing 'the best loan possible' to customers wasn’t always the bank’s main goal, say some former employees."

"One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide."

"Other documents from the subprime unit also show that Countrywide was willing to underwrite loans that left little disposable income for borrowers’ food, clothing and other living expenses."

"A different manual states that loans could be written for borrowers even if, in a family of four, they had just $1,000 in disposable income after paying their mortgage bill. A loan to a single borrower could be made even if the person had just $550 left each month to live on, the manual said."

"'In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,' said Ira Rheingold, executive director of the National Association of Consumer Advocates. 'And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.'"

The Coloradoan. "Norlarco Credit Union stopped making construction loans on homes in Florida a year ago, but now faces numerous lawsuits alleging it made construction loans to members who couldn’t afford the payments and defrauded another credit union into sharing the risk."

"At least six lawsuits in Florida and one in Colorado naming Norlarco as a defendant paint a picture of a credit union that ignored credit-worthiness when approving loans, many in Lehigh Acres on the western edge of the Everglades near Fort Myers, Fla."

"Construction loans resulted in mounting delinquencies, which led federal regulators to seize control of Norlarco in July within weeks of the lawsuits hitting Florida courts."

"With more than $212 million in deposits and $334 million in assets as of June, Norlarco is the largest credit union in Larimer County and eighth-largest in Colorado."

"Norlarco CEO Bob Hamer told the Coloradoan on Thursday he stopped the Florida loan program about a year ago when he replaced former CEO Chuck Mabry, who retired. Mabry defended the loans as 'a good risk, well-secured and very profitable for us.' He said he 'had absolutely no idea' what went wrong."

"In the lawsuits filed in Florida federal court, Norlarco is accused of making deals with builders and buyers that promised big returns on their investments but went bust when the Florida housing market tanked."

The Brisbane Times. "Although financial markets have begun to stabilize after several turbulent weeks, experts say the subprime mortgage loan crisis will take time to resolve, and could drag down other sectors of the economy."

"Gridlock in credit markets is putting more pressure on housing as lenders tighten standards in the face of rising delinquencies, say economists."

"With a pullback in lending, 'We now look for an even deeper housing recession,' said Lehman Brothers economists Michelle Meyer and Ethan Harris in a briefing note to clients."

"Goldman Sachs' economist Jan Hatzius agreed, saying the bubble in housing has yet to be unwound. 'Our working assumption has been that US home prices are about 15 percent overvalued,' Hatzius said."

"But because of changes in credit availability and mortgage rates, Hatzius said he sees 'a more dire picture' in which 'cumulative nominal price declines of 15 to 30 percent are possible.'"

"Because so many bad loans were packaged into securities that were sold around the world, said Robert Brusca at FAO Economics, 'This has created tremendous financial turmoil ... it's an Easter egg hunt trying to figure out who holds the bad ones.'"

"The median price of American homes is expected to fall this year for the first time since federal housing agencies began keeping statistics in 1950."

"The reversal is particularly striking because many government officials and housing-industry executives had said that a nationwide decline would never happen, even though prices had fallen in some coastal areas as recently as the early 1990s."

"A 2004 report jointly written by the top economists at five organizations, the industry groups for real estate agents, home builders and community bankers, as well as Fannie Mae and Freddie Mac, the large government-sponsored backers of home mortgages — was typical. It said that 'there is little possibility of a widespread national decline since there is no national housing market.'"

"Alan Greenspan, the former Fed chairman, said the housing market was not susceptible to bubbles, in part because every local market is different."

"In 2005, Ben S. Bernanke, then an adviser to President Bush and now the Fed chairman, said 'strong fundamentals' were the main force behind the rise in prices. 'We’ve never had a decline in housing prices on a nationwide basis,' he added."

"As interest rates fell and lending standards became looser, prices started rising rapidly in the late 1990s. The result was a 'euphoric popular delusion' that real estate was a can’t-miss investment, said Edward W. Gjertsen II, president of the Financial Planners Association of Illinois. 'That’s just human nature.'"

"Dean Baker, an economist in Washington who has been arguing for the last five years that houses were overvalued, said the idea that house prices could go only up had fed the bubble."

"It was very misleading,' said Mr. Baker. There are a lot of people, he said, who bought 'homes at hugely inflated prices who are going to take a hit. You also have a lot of people who borrowed against those inflated prices.'"

"Perhaps the most prominent housing booster was David Lereah, the chief economist at the National Association of Realtors until April. In 2005, he published a book titled, 'Are You Missing the Real Estate Boom?' In 2006, it was updated and rereleased as 'Why the Real Estate Boom Will Not Bust.' This year, Mr. Lereah published a new book, 'All Real Estate Is Local.'"

"In an interview, Mr. Lereah acknowledged he had gotten it wrong, saying he did not fully realize how loose lending standards had become and how quickly they would tighten up again this summer."

"But he argued that many of his critics have also been proved wrong, because they were bearish as early as 2002."

"'The bears were bears way too early, and the bulls were bulls too late,' he said. 'You need to know when you are straying from fundamentals. It’s hard, when you are in the middle of the storm, to know.'"