China isn't the only place where they are talking about a housing bubble again these days and this morning's papers were sprinkled with reports on the subject. It would seem that, after the events of the last ten years or so, about the only way to be sure that there is a bubble is when you hear a high ranking government official deny its existence and that's exactly what happened north of the border according to this story in the Globe and Mail.

Ottawa says housing bubble not a concernFinance Minister Jim Flaherty appears to have no immediate plans to tighten Canadian mortgage rules despite the advice of senior bankers concerned about surging home prices.

The National Tax Journal asks for views on a recent proposal from Len Burman to limit tax expenditures. My answer: I couldn’t agree more.

With regard to the politics, one would have to see whether the phrase “cut tax expenditures” polls more like the phrase “cut expenditures,” which I assume polls well, or like the phrase “raise taxes,” which of course polls horribly. I have no idea. But at least there is a hope of breaking through the ridiculous artificial “Taxes versus Spending” rhetoric that dominates Washington.

U.S. prime jumbo loan performance continued to weaken in January as serious delinquencies rose for the 32nd consecutive month, according to Fitch Ratings.

Although prime jumbo loan delinquencies began to rise in the second quarter of 2007, they accelerated in 2009 nearly tripling over the course of the year. Florida saw the biggest monthly jump of the five states with the highest volume of jumbo loans outstanding.

Last week saw earnings releases from many of the nation’s largest home builders including DHI, MDC, SPF, MHO and BZH. It was a busy week. All reported their first profit, largely due to loss carry-back tax credit, since the downturn. Without the tax credit, most builders would still have been producing a loss. But by and large the amount of loss and the amount of asset write-down appeared to have come to an end.

New home sales are at the lowest point in two decades. Against the backdrop of foreclosures and short sales, new home inventory is also at a depressed level. An army of private builders have gone out of business, due to lack of refinancing. The remaining group of public builders now has ample cash reserve, lean workforce, much reduced balance sheet, much lower level of leverage, and lower level of competition than before.

News about mortgage rules in Canada are surfacing again. With the average price of a home reaching $337K in December 2009 (a 19% increase from the same period a year ago), the big banks urged the Canadian government to tighten lending requirements by shortening amortization rates to 30 years and bumping up minimum the down payment on a home purchase to 10%.

Unfortunately there seems to be some confusion as Canadian Finance Minister Jim Flaherty thinks there is "no clear evidence now of a housing bubble in Canada." I'm not sure what planet he lives on. I applaud the bank's willingness to let go of short term profits in order to avoid issues similar to the US. People can debate whether the Canadian housing market is in a bubble or not, but what is certain is that a housing correction will take place.

Lumber futures have surged nearly 60% since the beginning of October despite mixed signals in recent housing data (read Mike Farrell’s must read housing comments here). Random Lengths recently reported the continuing substantial weakness in housing as lumber production declined 23% vs 2008:

U.S. lumber production through November totaled 21.205 billion board feet, down 23.0% from the January-November 2008 figure, according to the Western Wood Products Association. Through the first 11 months last year, production in the West declined 22.3% compared to the same period of 2008; production in the South fell 23.7% during the same period. Nationwide, November 2009 production totaled 1.620 billion feet, down 16.6% from the November 2008 total and off 18.9% from October 2009.

The first two graphs illustrate how different actors in our economy are behaving through the current environment. Households, businesses and financial institutions alike have begun the process of increasing their savings, refinancing their debt and de-levering their balance sheets. It’s a painful but necessary process. The progress made by the private sector, however, has been more than offset by the borrowing and spending of federal, state and local governments.

The headline savings rate that we usually think about is the household one, but the same calculation can be applied to the government. On a national level, think of households, businesses, financial institutions and governmental entities all contributing their savings to one big piggy bank. The first graph below (click to enlarge) shows what each is contributing to our national piggy bank in the form of net savings. Gross savings is simply income less expenditures, and net savings is calculated by subtracting the consumption of fixed capital from gross savings. As the graph shows, net savings of the private sector has been generally rising and net federal government savings lately has been plummeting.

Brett Arends is in London, and, like most visitors, is shocked at the prices for everything from taxis to houses.

If London real estate is buoyed by the uniqueness of the town’s economy, there is a disturbing degree to which the reverse is also true. This is a ridiculously expensive city to visit. I seem to hemorrhage money with every step I take. I was wondering, as I got out of a taxi the other night and severed the requisite two limbs to pay the fare, how I ever afforded to live here all those years.

The reason why we're poorer: more of our income goes to housing than it did 35 years ago.

Simply put: housing costs have far outpaced household incomes over the past 35 years, making the high cost of housing the primary driver of declining discretionary income: what's left after paying taxes and housing.

You might want to refill your coffee or tea cup because we have to slog through some potentially confusing numbers to root out the truth.

On many occasions, and in many different forums, the Federal Reserve has expressed every intention of winding up its $1.25 trillion program for buying agency MBS by March 31.

The FMOC explained in its January 27th statement:

Let us all get one thing straight, this is an investment-led recovery. Asset prices have rallied strongly from their March 09 lows and corporations have done a phenomenal job of quickly cutting costs and returning to profitability. The casualties reside with the U.S. Government and the U.S. consumer. With an unemployment rate of 10%, housing prices off their highs by more than 30%, and equity markets still 30% away from their highs the average American is feeling the squeeze. Loan delinquencies and defaults are still reaching new highs. The data does not lie:

Click on charts below to enlarge:

After looking at yesterday's 21 day Treasury auction, you have to wonder:My Take:As you can see above, despite a strong BTC, the number of indirect bidders in yesterday's auction was ZERO! Indirect bidders are mainly composed of the central banks of the world, while the primary dealers are made up of the banksters like Goldman Sachs (GS) and Morgan Stanley (MS).

The government is flooded with loan modification requests at this point. They have been working through this disaster at an ever increasing rate. They are now doing close to 100,000 per month. But the bad news is the pipeline is full. There are at least 3 million homeowners who need/want some form of adjustment on their mortgage cost. The word is out on this one in every corner of the country. If you want a break on your mortgage the first step is you have to stop paying for at least three months. I know for a fact that this is correct. I have seen it in a half dozen cases in just the last year. The banks/mortgage servicer will tell this to you on the phone. “You don’t qualify for debt relief, you’re not 90 days late”. In my experience the person on the other end of the line hears this and says to their spouse, “Honey, I have good news! We’re going to get the break we need. All we have to do is stop paying the bills”.

Avatar Holdings (AVTR) owns and develops land for a variety of uses, including single-family homes. As most of its operations are in Florida and Arizona, its business conditions, as well as its stock price, have taken a beating in the last couple of years. While it might represent value at its current price, in a way similar to which Melcor (MODVF.PK) traded at a large discount to its value not too long ago, management's intentions make the situation a little bit unclear.

The company has lost almost $10 million per quarter in 2009, as it struggles to sell its units for more than their carrying value. While this is by no means a pretty situation, consider the depressed level of the stock relative to the company's assets:

Edward DeMarco, the acting head of FHFA, wrote a letter to some heavy hitters in Washington: Sen. Dodd-Banking, Sen. Shelby-Banking, Congressmen Frank-Financial Services and Bachus-Financial Services. The letter was a cry for help. I sincerely hope that these important legislators do not ignore this SOS. If they do, some irreversible damage will have been done. Hundreds of billions of dollars are at stake. Even more significant, the direction of the government's future role in the mortgage market is going to be shaped by the corporate Exec’s at Fannie (FNM) and Freddie (FRE). There could not be a worse outcome. DeMarco laid it all on the line. He described the terrible mess that Fannie and Freddie are in. His words: “These calls on taxpayer funds are troubling to all of us.”