Adam Levitin and Susan Wachter have a new paper out which reckons it can explain the entire housing bubble by looking at the supply of private-label mortgage-backed securities in the market, and the information asymmetries embedded in them.

They do have a point: since the banks putting together these private-lable securities, or PLS, knew much better than the buyers (and, for that matter, the ratings agencies) what was going into them, there was an opportunity — grasped with both fists — to take advantage of those asymmetries:

By Dirk van Dijk, CFA

Total Construction Spending fell in July to a seasonally adjusted annual rate of $805.2 billion, down 1.0% from June, and down 11.7% from a year ago. The decline was greater than the 0.7% decline that was expected. In addition, June was revised down to be 0.8% below May rather than the 0.1% increase originally reported.

It was a rainy day this morning and traffic was bad, but nothing out of the ordinary. Or so I thought. After diving into some work, and engaging some clients, I decided to check up on the markets (something I had neglected to do last night and early this morning). What I saw literally blew my mind.

Dow Jones up nearly 2.5% at 10am EST' What' How' It turns out, there was a manufacturing report from the Institute for Supply Management showed an increase to 56.3 in August from 55.5 in July. China growth has apparently only been “moderating” as opposed to slowing down. This is marginally good news, of course, as any reading above 50 indicates growth. This, apparently, has turned bears to bulls and frozen the deepest chasms of Hell into winter wonderlands.

The yield on the 10-Year US Treasury continues to trade around my quarterly pivot at 2.495. A new monthly pivot is 2.562 with my semiannual risky level at 2.249. Gold is trekking towards its all time high at $1266.5 set on June 21st with my semiannual and monthly risky levels at $1260.8 and $1263.8. Crude oil has a new monthly pivot at $74.45. The euro remains below its 50-day simple moving average at 1.2789. The Dow shows a new monthly pivot at 10,164 for September with today’s value level at 9,876. The miss-interpretation of economic data.

Just when you thought the housing market couldn't get worse, it did.

New single-family home sales slumped 12.4% in July to a record-low annual rate of 276,000 units, as homebuyers shunned their realtors in the absence of government support. The consensus expectation was for a slight up-tick to a 333,000 unit annual rate, so I suppose it's time to throw out the models. Sales over the prior three months were also revised lower by 9,000 units.

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Both the Case Shiller 10 & 20 city Home Price Indices rose 1% in June on a non-seasonally adjusted basis. S&P cautions that their seasonal adjustments are probably being distorted by seasonal factors that’s why I prefer to look at the NSA numbers. 18 out of 20 Metro areas recorded price rises with only Phoenix and Las Vegas recording price declines. Whilst that sounds good, it should be remembered that the Case-Shiller indices are an average of 3 months, thus the latest report is an average of April, May and June, the last 3 months of the tax incentives. As S&P notes;

In the interesting exchange between Will Wilkinson and Matt Steinglass on Democracy in America, Matt writes:

Through the 1990s and early 2000s,Congress progressively raised targets it set for the GSEs to securitise loans coming from low-income neighborhoods. To the extent that I understand what Mr. Rajan is talking about, I think he may be talking about this. Mr. Jaffee argues that it wasn’t relevant, because the GSEs tended to ignore Congress’s targets, and when they did meet them it was because everyone in the world, including private securitisers, were falling over each other to buy up subprime loans, since everyone had convinced themselves they’d be profitable.

In June, home prices continued to rebound, but unevenly across the country. The Case-Schiller Composite 10 City index (C-10) rose 0.32% on a seasonally adjusted basis, and is up 5.02% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) rose by 0.28% on the month and is up 4.22% from a year ago. Of the 20 cities, nine posted gains on the month, while 11 saw prices fall.

Year over year, 15 metro areas saw gains and five suffered losses. There is a seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers.

I think it’s very useful to split the question of the housing bubble from the broken financial markets in evaluating the crisis, and then examine how each influenced each other. The financial markets are supposed to aggregate information across a wide network of individual agents and firms each seeking to do their own thing, and this aggregation of information is supposed to channel savings and investments towards productive uses.

A lot of the discussion of what went wrong concerns agency problems, and there are massive amounts of those at the heart of the problem. But another way to view these agency problems is that powerful private agents were able to control key nodes in the markets, distorting the market signals that channel capital into a way that was privately (very, very) profitable but socially disastrous. Or financial instruments were traded with no ability for the price mechanism to be extrapolated outwards to other agents.

No, really'

The S&P/Case-Shiller index of property values increased 4.2 percent from June 2009, the group said today in New York. The median estimate of economists surveyed by Bloomberg News called for a 3.5 percent advance.

Today’s release of the S&P/Case-Shiller (CSI) home price indices for June 2010 reported that the non-seasonally adjusted Composite-10 price index increased 1.02% since May further indicating that the government's housing tax gimmick worked to lift prices into the expiration.It's important to note that since the CSI data is a three month rolling average, it will take until the July reporting period (i.e. the September release) to get beyond the majority of tax stimulated home sales so it will take some time to see what the true "organic" (non-stimulated) housing trends look like.

Standard and Poor’s reported that both the 10-city and 20-city Case Shiller home price indexes rose 1.0 percent from May to June following a bigger gain the month prior, reflecting the end of the homebuyer tax credit that expired two months ago.