rental/vacancy thoughts

A recent question on another blog got me thinking about something: How many past speculators are still bagholders (i.e. still holding the cash flow negative properties they bought during the boom), and how many have moved on (dumped "at the market" to wipe their hands of the whole affair). I think we're much closer to the beginning of this process than the end. I think we're starting to see the price cuts we need to move inventory, but we've got much more room to go, and many more "stuck" owners that haven't capitulated yet.

Don't forget: Last year, 40% of the existing homes purchased were bought as either vacation homes or investment homes, per the National Association of Realtors. That was the highest percentage of non-owner-occupant purchases ever. In other words, we likely have more non-owner-occupants than ever before.

Here's something else to consider: The Census Bureau recently reported that the home vacancy rate has climbed to its highest level in history. That would be 2.5% in Q3 -- up from 2.2% in Q2. Considering that the data goes back to 1956, that's quite a feat. The definition of a vacant unit is as follows:

"A housing unit is vacant if no one is living in it at the time of the interview, unless its occupants are only temporarily absent. In addition, a vacant unit may be one which is entirely occupied by persons who have a usual residence elsewhere. New units not yet occupied are classified as vacant housing units if construction has reached a point where all exterior windows and doors are installed and final usable floors are in place. Vacant units are excluded if they are exposed to the elements, that is, if the roof, walls, windows, or doors no longer protect the interior from the elements, or if there is positive evidence (such as a sign on the house or block) that the unit is to be demolished or is condemned. Also excluded are quarters being used entirely for nonresidential purposes, such as a store or an office, or quarters used for the storage of business supplies or inventory, machinery, or agricultural products. Vacant sleeping rooms in lodging houses, transient accommodations, barracks, and other quarters not defined as housing units are not included in the statistics in this report."

That gets me to my next point. There's been a lot of commentary about how the poor housing market is creating a booming rental market. People have to live somewhere, and when they can't afford to buy, they'll rent. That, in turn, will drive down rental supply and drive up rental rates.

Rents have clearly risen. I won't dispute that. But think about the supply squeeze for a minute. Part of it stems from the fact many multi-unit apartment complexes were bought, then converted to condos for sale. That tightened supply. Now, those condo conversions are falling on their face -- nobody is buying the glorified apartments. As a result, many conversions are re-converting right back into apartments. That happened to one complex right down the street from me in fact.

And what about all these new and existing homes bought up as flips? With sales falling, many owners are stuck -- they can't sell. So an increasing number of "for sale" ads are turning into "for sale OR FOR RENT" ads. I see it every day. I believe we'll see a lot more of this rental supply hit the market in the coming months.

Bottom line: Could the tight/strong rental market be poised to turn?

some media links to share

One other thing I meant to share -- some links to stories where I discuss the latest news in the housing sector. Here's one from the Washington Post, and here's one from public radio's Marketplace show.

In a nutshell, it seems people are relatively sanguine about a 2.5% YOY drop in existing, single family median home prices and a 9.7% YOY drop in median new home prices. But should they be? I don't think so. We should sit up, take notice, and worry when the value of our homes falls by the largest margin in more than 35 years.

Yes, sales picked up a bit and yes, inventories slumped a bit. But given the enormous magnitude of the inventory overhang we still have, and the overall economic weakness out there, I think we're going to have to see prices CONTINUE to fall for quite some time to "clear" the market.

belated blustering on bonds ...

I was out on Friday, and I've been catching up on some other stuff today. Ergo, no posts until now. But here are some quick thoughts on the recent market action:

* GDP was a surpise to me and the markets. I expected more on the growth front. But we got a lackluster 1.6% annualized gain vs. a forecast for 2% growth. Throw in the recent disappointment in durable goods orders, and you end up with the ingredients for a bond market rally.

* Technically speaking, we've climbed back to the 112 level in the long bond. That's where we broke down on September's "jobs day." I didn't expect this, especially given that the recent inflation readings remain strong, that liqudity remains ample, that stocks are setting records daily, that consumer confidence is rebounding, etc., etc. But these latest figures raise the possibility that the broader economy (ex-housing) is in more trouble than I thought.

* Speaking of housing, residential construction plunged at an annual rate of 17.4% in the third quarter, the worst showing since the first quarter of 1991. That whacked 1.12 percentage points off GDP, the biggest drawdown from housing in almost 25 years.

* The next catalysts for a big move in bonds are the October ISM index figures due out Wednesday and the October jobs report out Friday.

* Regarding the latest inflation news, the core Personal Consumption Expenditures reading was +2.3% YOY in the third quarter. That's above the 2% unofficial Fed cap, though down from 2.7% in Q2. September's core PCE reading from the personal income/spending data came in at 2.4% YOY. That too is well above the Fed's comfort zone and just shy of a multi-year high. Yes, inflation indicators have trended down a bit. But no, I don't believe we have an all clear on the inflation front by any stretch of the imagination.

this chart says it all

Here's a chart showing the YOY % change in median new home prices, going back 42 years. Yikes.

Fire sale on new homes

The latest new home stats just came out. Here are some details. But the headline, from my perspective is "Fire sale in new homes!" Median prices dropped a whopping 9.7% YOY -- the most in 36 years. Details below ...

* Sales fell 14.1% YOY in September, an improvement from the YOY declines shown in August (20.9%) and July (29.1%). The seasonally adjusted annual rate o sales was 1.075 million units, up 5.3% from August's 1.021 million units, which was revised up from the originally reported 1.05 million units. That MOM gain beat expectations.

* Total homes for sale on the market were 557,000, down a bit from the summer peak (570,000). The months supply at current sales pace reading of inventory was 6.4 months, down from the July peak of 7.2 months. There are lots of completed, empty homes within the mix, however.

* The biggie in the report is the whopping decline in median prices. Median home prices plunged 9.7% YOY in September to $217,100. That appears to be the single-biggest decline in any month going all the way back to December 1970 (when they declined 11.2%).

Biggest price decline ever ... sales rate hits 32-mo. low

More details on the existing home sales report. This looks like the largest monthly drop ever in single family home prices -- a decline in the median of 2.48%. The seasonally adjusted annual rate of sales, at 6.18 million units, is the lowest going all the way back to January 2004.

Existing home sales flash

Existing home sales figures for September just hit the tape. The quick and dirty analysis: Sales fell to 6.18 million units in September from 6.3 million units in August. That was a 1.9% decline, slightly more than the 1.2% drop forecast. The YOY drop is 14.2%.

Slight bit of good news in the inventory figures, which dipped to 3.2 million units from 3.285 million in August. But on a months supply at current sales rate basis, inventory was a very elevated 7.3 months, unchnaged from the past couple months. The price data was the most telling -- single family home median prices dropped 2.5% YOY while condo prices dropped 2.8%. These are nationwide figures, and they show a deeper decline from August's YOY fall.

Still buying those 2-years...

The government just finished selling $20 billlion in 2-year Treasury Notes. The auction was pretty strong by any measure. Yields came in slightly below expectations, for one thing. For another, the bid-to-cover ratio surged to 2.91. This shows how many dollars worth of bids were received vs. how many dollars worth of notes were being sold. We haven't seen a bid-to-cover ratio this high since November 2000. Interestingly enough, though, Treasury yields and prices barely budged after the sale. It doesn't look like anyone wants to place big bets ahead of the Fed meeting, which is underway now and will conclude tomorrow.

The technical take on long bonds

Long bonds took it on the chin again today, losing a half point in price. It seems many of those speculative bets on higher prices that I've been talking about for a while now are being unwound. A Bloomberg story also said that an updated, internal Fed report paints a less optimistic picture on the inflation front.

Whatever the reason, the fact remains that long bonds are at a key technical support level -- roughly 109 1/2 to 110. These levels held on several tests back in August and September (shown in the chart above). Will they hold now? We could get an answer on Wednesday. That's when we see what the Fed has to say publicly after its latest interest rate policy meeting.

Which part of the housing market will get hit the hardest?

That's a question I've heard a lot of people ask. No one has a perfect answer. But here's mine:

1) I believe the lowest-priced homes will actually do okay (fall the least in value, see the smallest drop off in demand, etc.) Despite the obvious bursting of the housing bubble, your average lower income American (and most Americans, for that matter) STILL believes that housing is a decent investment. There is a core group of non-speculators who want to put down roots, and will be willing to step up and buy when properties fall into their price range (from higher price points) and/or when new, reasonably well-maintained properties list in their range.

2) Rising interest rates HELPED pop the bubble. But in many ways, the bubble just popped under its own weight. Speculators ran out of juice, prices got way out of whack with demand, and Pow -- that was it. The fact is, interest rates are still relatively low and the economy is decent, if not great. Until and unless rates rise much more, again, your non-investor, non-speculator buyer who still has a decent wage will look to buy lower-priced homes rather than rent (especially in areas where the buy/rent ratio is not way out of whack)

3) So what part of the market is really due for a pounding? In my view, the flipper-infested middle market, and the “lower high end.”

* The middle market (think new subdivisions with street after street of $300,000-$400,000 "ghost homes") is where novice, real estate "specuvestors" really seem to have gone hog-wild. They own too many homes that are either empty or that can't rent for anywhere what they need to generate positive cash flow. I think this is where foreclosures will overwhelm the market with time.

* The lower high end is where Baby Boomers and other “I want to prove how successful I am by purchasing too much house with an IO/option ARM” types flocked. Think $700,000 - $1.3 million "McMansions." These people really didn't have any business buying 6 bedroom homes with media and/or wine rooms. But Frankenstein Financing made it possible for them to do so at low payment rates ... at least, initially. As resets surge, these homes will quickly become unaffordable. You'll see inventory continue to flood the market as these stretched owners start trying to get out from under their onerous payments.

4) As for the high-end and ultra high end, that's probably where you'll see the biggest dollar and/or percentage declines between initial list prices to actual sale prices. While money is really no object to buyers in this price range, rich people didn't get rich by being stupid with their funds. I expect to see, for instance, homes listing for $10 million to go for $7 million or $8 million ... and some for even less.

Anyway, that's my point of view, for what it's worth. Enjoy the rest of your weekend.

Mortgage sector mayhem

WM and LEND aren't having a very good day. In fact, both stocks are going up in smoke this morning due to significant profit problems. A few data points ...

* Wamu missed earnings estimates by 9 cents per share, on a continuing operations basis. The company's mortgage unit went from earning $302 million a year ago to losing $33 million in Q3.

* Accredited Home Lenders said per-share profit would fall short of its previous forecast range of $4.50 to $5. The problem: Punk origination volume, weak secondary market conditions and rising delinquencies.

The fact is, when you get stagnant to falling home values, it shuts off the "free money" equity liquidation valve. And when you look at the kinds of Frankenstein Financing loans that were made recently, the surge in late payments should surprise no one. The fact is, there has been an utter degredation in mortgage standards for the past couple of years ... and it's time to deal with the fallout.

Also worth noting: WM said it will likely boost loan loss provisions by $200 million in 2007. My belief is that you'll see a lot of extra provisioning over the next several quarters throughout the banking industry. Not only is credit quality starting to sour, but reserves are also at extremely low levels, historically speaking. In fact, the FDIC's Quarterly Banking Profile report for Q2 2006 points out that "the industry's ratio of reserves to total loans and leases fell for the fourteenth quarter in a row. At 1.10 percent, it is at its lowest level since 1985."

da bonds

You know, I hate to keep harping on the same thing ... but look at the bonds.

Yesterday's "great" decline in headline PPI caused bond prices to spike up ... but they gave back almost all of those gains by the end of the day.

Today's big decline in headline CPI ... and on-consensus increase in core CPI ... caused bond prices to spike higher. Now, they're trading back to flat. One possible catalyst: While headline inflation fell due to energy, the “core” CPI jumped another 0.24%. That pushed the year-over-year change in core consumer inflation UP to 2.9% from 2.8% a month earlier. In fact, core prices haven’t risen this much in ANY month going all the way back to January 1996.

The "weak" jobs report several days ago? That got sold aggressively, too.

I believe we simply have to keep watching the interest rates here. The big rally in bond prices (and decline in rates) helped stabilize housing a bit in recent weeks. Will rising rates on renewed inflation fears change that dynamic? And what about inflation? What if it's not dead and buried, the way Wall Street's been proclaiming?

Quick data hits

Some quick hits on today's plethora of economic data:

1) PPI -- Producer Prices fell 1.3% MOM, but that was expected due to the big drop in energy prices. Core PPI jumped 0.6% vs. forecasts for a 0.2% gain. So is that a sure sign of blowout inflation? Well, not really because a good part of it stemmed from a major jump in the price of passenger cars and light trucks (and those price categories had PLUNGED the month before). Long story short, the gubmint seems to be having one heck of a time acounting for model year changeover in auto prices.

2) IP/CAP-U -- That's industrial production and capacity utilization to the non-jargon types out there. Both were weaker than expected. But here too, a big plunge in utility output (weather related) helped skew the numbers lower.

3) NAHB -- This is the National Association of Home Builders Index that comes out each month. The measure ... gasp ... actually rose 1 point to 31 from 30 amid optimism that the downtick in interest rates and energy prices might help bolster sales. Of course, when you consider the index has plunged in a virtual straight line from its peak of 72 in June 2005 ... and when you realize readings of 30/31 are the worst we've seen since early 1991 ... it kind of puts some perspective on the overall state of housing.

Tomorrow's CPI is obviously the next major news item for the bond market. Expectations call for a 0.3% headline drop and a 0.2% "core" gain.

Foreign buying bonanza

Every month, the Treasury Department releases statistics on net foreign buying/selling of U.S. assets. This "TIC" data is oudated (you get it two months in arrears) so it's not really "tradable." But it does give you an idea about how much demand there is for U.S. Treasuries, stocks, agency bonds (Fannie Mae/Freddie Mac), and corporate debt. The latest numbers were mind-bogglingly high -- a record $116.8 billion in August. That was a huge jump from $32.9 billion in July, and more than double the average forecast.

Basically, foreigners are still showing a healthy appetite for our assets. It seems that optimism the Fed was done hiking rates, and a belief the economy and inflation would slow, prompted buyers to step up to the plate in spades. But the question now becomes, what next? Bonds have gotten hit pretty hard in the past couple weeks amid signs we're not exactly seeing economic Armageddon. Will tons of foreign money continue to flow into U.S. debt if oil prices start rising again (they are) and if the economy re-accelerates (which it might be in the process of doing)?

Home builders actually SOLD on bad news

Just a quick hit note here: Home builder Centex (CTX) had terrible news out after the bell yesterday -- big earnings miss ... tens of millions of dollars of land option losses and write-downs ... a 28% YOY decline in net orders, and more. CTX is certainly not the first builder to deliver an ample helping of bad news. We've seen warning after warning from the sector in the past several weeks. But today is the first day a home building stock sold off on bad news AND STAYED DOWN. Most of these recent bad news bombs have been viewed as "buying opportunities" by the Wall Street crowd. Is this just a blip or a change in trend? We'll see -- but it's worth noting.

Why bonds can't get out of their own way

This morning, we got key retail sales and import/export price data for September. At first, bonds loved the fact headline import prices plunged 2.1% MOM between Aug. and Sept. Advance retail sales also dropped 0.4% vs. expectations for a 0.2% gain. BUT if you strip out ALL fuel data (we all know energy prices tanked in September), things get interesting.

Ex-fuels monthly import inflation was 0.3% in Sept. That matches August's 0.3% rise ... giving us a 2.9% YOY ex-fuel inflation rate. Ex-auto, ex-gas retail sales were also up big 0.8%, the strongest reading since at least March, and maybe more. The reason headline sales were poor was that sales at gas stations tanked.

Bonds shot up 11/32 in price right after the news came out. They're now DOWN 12/32. Keep a very close eye on the bonds and how stocks react. Falling rates and assumptions of falling inflation have fueled this big market rally. While I believe the drop in energy prices WILL keep inflation from getting way out of control, these figures show the economy may not be as weak as everyone believed. They also raise the possibility core inflation will remain hot enough to concern the Fed.

Goldilocks Beige Book? Are you serious?

CNBC is currently saying the latest Fed Beige Book report is a "Goldilocks" report -- showing an economy that's not too hot, not too cold, and that has no inflationary pressures whatsoever. I'm not a raging inflationist, or anything, but I do think this report is anything BUT Goldilocks, and that it shows inflation pressures remain in the market. Just look at the following section of text -- while the overview copy claims price pressures are tame, virtually all the SUPPORTING copy talks about a tight labor market, still-high raw materials prices and pass-through at some businesses. Go figure. Bonds aren't showing much of a reaction to the news. They were recently up 6/32, about where they were trading before the Fed comments came out.

Employment, Wages, Prices

Labor market conditions remained taut since our last report. The Boston, Philadelphia, Richmond, Minneapolis and Dallas reports characterized labor markets as generally tight, particularly for skilled workers, while the remaining Districts noted that job growth was steady to stronger. Six Districts mentioned labor shortages, particularly for professional, scientific, and other technical workers. In addition, Kansas City said retailers faced shortages of experienced sales workers and Atlanta indicated that residential construction firms were having difficulty obtaining qualified construction workers, despite the slowdown in building activity. In contrast, Cleveland reported that roughly half of the homebuilders they contacted had reduced their labor force.

Wage growth around the nation was generally modest, although faster wage growth for skilled services workers was cited by a number of Districts. The San Francisco District noted that a short supply of healthcare, finance and construction workers pushed wages higher. In addition, Richmond noted a sharp uptick in retail wages and Atlanta reported that some manufacturers had raised entry-level wages in an effort to attract workers.

Most Districts reported few signs of increased price pressures in recent weeks. A number of Districts said that energy prices moderated, but increases in raw materials prices were noted by Philadelphia, Richmond and Atlanta, and a rise in building materials prices was reported by Minneapolis. Instances of businesses passing on higher costs were scattered across Districts; Cleveland and Atlanta said some manufacturers attempted to raise output prices while Boston reported increases in retail prices. Boston also reported that costs for some businesses had increased--especially for airfare and hotel accommodations. Likewise, the New York District noted that accommodation and theatre ticket prices had risen sharply compared to a year ago.

NAR throws in the towel on home prices

Incidentally, the folks at the National Association of Realtors just released their latest forecast for home sales, prices, and all that. Here's a Bloomberg story on the details. In a nutshell, the NAR is forecasting a 0.2% drop in new home median prices in 2006, which would be the first decline in 15 years. Also, they say existing home prices will end up rising 1.6% for full-year 2006. Bloomberg calls this the smallest gain on record.

Of course, it would have been nice for the NAR to release this useful information a year ago versus, say, this forecast from October 2005 saying that new home prices would rise 7.1% in 2006 and 5.2% for existing home prices.

And of course, there's this helpful issue of "Real Estate Insights" from August 2005. A synopsis of NAR Chief Economist David Lereah's commentary reads as follows ...

David Lereah's Economic Commentary: No Doom; No Gloom. Talk about a so-called "housing bubble" continues to be the topic from Wall Street to Main Street. But in order for the sky to fall -- for home prices to plummet -- there must be a significant drop-off in homebuying as well as a significant rise in housing inventories. The continued obsession with a "gloom and doom" scenario for housing is downright wrong.

Heaven knows I've made some bad calls in my lifetime. I get things wrong all the time. So I'm not pointing out these dramatically wrong forecasts to embarrass anyone. Instead, I'm making what I believe to be an extremely fair criticism: The NAR should have spent much less time cheerleadidenigratinggrating those of us warning about a housing bubble when things were going great. Instead, the group should have simply pointed out the obvious: A significant portion of the housing demand was "fake" investment-fueled demand, not demand from owner occupants. When it faded, so too would the housing boom. Talk about a wasted opportunity.

Bond selloff, day 4

We just closed another nasty day in the bond market. Long bond futures have now declined four days in a row -- 16/32 on 10/5, 30/32 on 10/6, 17/32 on 10/10, and 11/32 today. What's going on? The Fed is trying to beat it through bond traders' thick skulls that there will NOT be a rate cut anytime soon. Sure, some radical swing in the economic data could change things. But right now, Fed officials are just fine with the slowdown in housing ... are sanguine about it spreading to the rest of the economy ... and worried that even with a slowdown, inflation pressures won't ease enough for them to truly relax.

Three key passages from the Sept. 20 Fed meeting minutes:

1) “Recent rates of core inflation, if they persisted, were seen as higher than consistent with price stability, and participants underscored the importance of ensuring a moderation in inflation.”

2) “Members continued to see a substantial risk that inflation would not decline as anticipated by the committee.”

3) “Several participants worried that inflation expectations could rise and the Federal Reserve’s willingness to carry through on its intention to seek price stability could be called into question.”

I have pointed out for a while now that a HUGE amount of hot money has poured into the market, betting on a bond price rise. That money seems to be running out equally fast now.

Someone send Alan Greenspan a clue, STAT!

Back by popular demand, it's the Alan Greenspan show. The former Fed Chairman -- whose general approach to monetary policy was to inflate one bubble, pop it, then use a new one to mop up the mess -- pontificated on the housing market in a recent speech. He said "the worst may well be over."

Phew, I was worried for a minute. Now, if it was someone with zero credibility saying this -- like perhaps someone who talked up the benefit of Adjustable Rate Mortgages in February 2004 ... at one of the worst times in modern financial history to use an ARM ... I'd be much more concerned. Oh wait, that WAS Greenspan.

OR if it was someone who didn't recognize we had a bubble in the first place, then I'd be worried. Oh wait, Greenspan denied the bubble for ages, then claimed that all we had was a few isolated areas of froth ... like Florida, California, Massachusetts, D.C., Arizona, Oregon, Virginia, Idaho, Montana (am I forgetting anybody here?), etc., etc.

OR if it was someone who truly didn't understand the REASONS behind the boom (like, oh I don't know, ridiculously easy money ... Frankenstein Financing ... negative real interest rates), then I'd be REALLY worried. Oh wait, Greenspan further elaborated in his speech that the housing bubble did NOT stem from sharp interest rate cuts by the Fed. Instead, the fall of the Berlin Wall and communism caused cheap labor to flood the West, prompting disinflation, falling bond yields, and rising house values.

Folks, you just can't make this stuff up.

Bond price update

Long Bond futures now down 30 ticks ... or just shy of a point. The 0.83% decline is the worst daily hit since April 25. There's an early close today in the bond market, incidentally, and there won't be any Treasury trading on Monday due to the Columbus Day holiday.

Jobs report roiling bonds

A bunch of Fed heads came out this week and basically told bond traders: "Not so fast!" The bond "Anti-vigilantes," as I've coined them, had driven rates way, way down and prices way, way up on the hope there would be an imminent rate cut. Who knows if the Fed already had an advance heads up on today's jobs numbers when they made their comments. But the latest jobs figures seem to put to rest the idea that a cut is right around the corner. The details:

* Overall jobs creation was weaker than expected in September (just 51,000). But August's number was revised up big (+60,000 from original estimates).

* Plus, the unemployment rate dropped to 4.6% from 4.7%. And wage pressures (up 4% YOY) remain at a five year high.

In other words, it looks like bond traders got a bit carried away. We'll have to see how this all settles out longer-term. But in early trading, December Long Bond futures have swung from a 15/32 gain in price right after the report came out to a 19/32 loss. Rates are up across the board.

Fed hawks on the tape

Ben Bernanke's speech yesterday didn't say much about the economy, and his Q&A afterwards was relatively neutral, near as I can tell.

But TODAY, Fed Vice-Chairman Donald Kohn had some stark warnings for the bond "anti-vigilantes" (the bond buyers who have jumped way ahead of the Fed, driving prices up and rates down on the assumption a Fed rate cut is coming very soon ... say, early 2007). Among Kohn's comments:

"Don’t sell the Fed’s concern about inflation short” and “To date there is little evidence that this correction in the housing market has had any significant adverse spillover effects on the other parts of the economy.”

Then just today, Philadelphia Fed President Charles Plosser came out and warned:

"We need to remain vigilant and recognize that maintaining the current stance of policy, or even firming further, may be in the best interests of the economy's long-run performance" and "Recent developments in the real economy may be suggesting that lower interest rates are called for, but I do not believe that is the case."

In other words, it sure looks like the Fed is trying to talk the bond market down a bit. And it's actually working for a change -- long bond futures were recently down 18/32, or more than a half point. Ten-year Treasury yields were up about 5 basis points.

dollar chop

We've seen a lot of wild market action recently -- a big surge in interest rates, followed by a sizable drop ... a big surge in oil and commodities, followed by a sizable drop ... a big decline in stocks, followed by a sizable gain. Lots of wackiness and volatility, in a nutshell. But let's look at the Dollar Index, an index that tracks the value of the greenback against six major world currencies. After tanking in the spring, it has basically gone nowhere, consolidating in the 85-87 range.

What does it mean? I'm not entirely sure. But the dollar action does stand out amid a sea of chaos in other financial markets.

busy, busy this week

Sorry for the downturn in posting activity this week. Been slammed with my regular duties. But a quick summary of recent action:

* In Q&A after a speech today, Fed Chairman Ben Bernanke said housing is having a "substantial correction." He said the downturn should cut around 1 percentage point off of GDP growth in the second half of this year, and will have some impact next year as well.

* Bernanke certainly didn't signal any imminent rate CUT. His comments indicated that growth in commercial construction remained strong, as did other parts of the economy outside of housing.

* Market rally on "soft landing" thesis has continued. But I believe that may be a bit too much wishful thinking on Wall Street's part. More on that over time. Also, I shared some thoughts with my local paper about the Dow high; you can read the story here.

Pending sales pop

In the interest of "fair play," I should point out that we got a STRONGER than expected pending home sales report for August from the National Association of Realtors. The NAR's pending sales index was up 4.3% on the month.

Some thoughts: This strength comes on the heels of a dismal July (when pendings were down 7%). It doesn't seem to fit with the regional sales reports I've seen or the Mortgage Bankers Association's purchase mortgage application index (which has generally been deteriorating for the past two months). And pendings were still down more than 14% YOY in August. But it's definitely worth keeping an eye on.