The National Association of Realtors reported that sales of existing homes fell 2.2% in May. A federal judge gave oil drillers in the Gulf a temporary stay of the Administration's six month moratorium on drilling in deep water. Oil stocks did not react to the legal news. It may be that the amount of crude that the big oil companies get from the Gulf is just too small.

The housing data hammered the market however, and trumped any other news that came across the tape.

The numbers:

Dow 10,293.52 -148.89 (-1.43%)
S&P 500 1,095.31 -17.89 (-1.61%)
Nasdaq 2,261.80 -27.29 (-1.19%)

According to the National Association of Realtors (NAR), resales of U.S. homes and condominiums slipped 7.2% during January. This drop brought the seasonally adjusted annual rate to 5.05 million, which was the lowest in seven months. January's drop marks the second-straight month of drops, following up December's record plunge of 16.2%.

A spokesman for NAR noted that this is "not good news. ... There is rising concern about the strength of the housing recovery." The group is holding out hope that the Spring will be better, as the latest tax break will expire and potential job growth could help push home sales higher. The good news is that the pace of sales in January outpaced those from a year earlier by 11.5%. The current inventory of unsold homes stands at a nearly 8-month supply at the current sales pace.

The Boston Globe interviews Warren Group CEO Timothy Warren whose firm tracks housing in Massachusetts. He suggests that it could take about 10 years before housing prices return to where they were at the peak in 2005.

Warren is a breath of fresh air when it comes to analyzing the housing market. Unlike industry-sponsored studies -- such as this bubbly comment from the National Association of Realtors -- Warren carefully tracks and analyzes data and his observations are not filtered by the need to use public pronouncements to spur real estate transactions.

But Warren's loyalty appears to lie with objective data gathering and analysis, rather than having an ulterior motive. He thinks that the declining number of home sales is worse than the previous housing slump of the early 1990s. He notes that "In the 1990s, we had just two years when the number of sales declined. We are in the fourth year of declining sales in the current slump."

The number of mortgage delinquencies rose to a 20-year high in Q3 as borrowers increasingly found it difficult to make payments within the 30-day grace period, the Mortgage Bankers Association announced Thursday.

The percent of home loans with payments more than 30 days late rose to seasonally-adjusted 5.59%, the MBA announced -- the highest level since 1986. The group's survey began in 1972.

Telling stat

The delinquency statistic suggests that the housing correction "is far from over," according to economist Steve Affinito.

"It's not even the beginning of the end," Affinito told BloggingStocks on Thursday. "Generally during a housing slump, what you see first is a rise in unsold homes, and then a rise in delinquencies, mostly from homeowners who did not sell or could not refinance."

When financial world's mavens speak - - such as Alan Greenspan, George Soros, Bill Gross - - the markets usually take notice.

And when the mavens speak in unison regarding economic fundamentals, well, a word to the wise: be certain to record those data points before forming your own conclusion regarding the U.S. economy's health.

Soros, in a lecture at New York University, said the U.S. economy was on the verge of "a serious correction."
"I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Federal Reserve Chairman Ben) Bernanke is seeing," Soros said, Reuters reported.

Forbes takes a look at a group of professionals who, thus far, have escaped from the volley of criticism being leveled at subprime loan originators in the wake of the housing bubble's collapse: real estate agents.

In their quest to generate sales and commissions, some say that agents encouraged home buyers to take out loans larger than they could afford -- often subprime loans, where the unlucky homeowners now find themselves with monthly payment 30% higher than the teaser rates they were initially paying.

The exact amount of blame that should be placed on real estate agents is up for debate and, in a sense, it doesn't even matter. What caused the subprime debacle was bad incentives: aggressive loan salesmen (and perhaps agents too) being paid on commission, who often had no stake in whether the loan worked out: They got their check at closing and that was that. Then the loans were packaged into CDOs and sold to Wall Street, which scattered them among money market accounts, pension funds, hedge funds, and other vehicles. But very few of the people who made the bad loans have been, or will be, held accountable.

Until the structure of the industry changes, we will always be close to another mortgage debacle.

For anyone who needed more evidence that the housing bubble is gone, the number of Realtors in the United States is expected to drop 4% in 2007. According to the Associated Press, "The group ended 2006 with nearly 1.4 million members -- almost double the roughly 716,000 it had in 1997 -- but expects 2007 to close with 1.3 million, a drop of more than 4 percent."

This looks like good news for consumers. Industry experts say that most of the "drop-outs" have not been in the business for a long time. They arrived at the part looking to make a quick buck, just as the punch bowl was being pulled away. The exodus of these fair-weather Realtors will likely lead to an increase in the quality of service that real estate shoppers receive.

David Bach, author of The Automatic Millionaire, recently told CNBC that a lot of people will make a lot of money buying real estate right now. Picking a bottom is never easy, but there appear to be a lot of signs of capitulation here.

Countrywide Financial (NYSE: CFC) CEO Angelo Mozillo, who spooked the stock market when he delayed his forecast for a housing market recovery until 2009, has been one of the most realistic executives in the housing industry. However, his downbeat assessment still may be overly optimistic.

If housing prices were inflated by a credit bubble as some have indicated, it will not be easily resolved. Indeed, data released today from the National Association of Realtors shows the pace of existing home sales fell to a four-and-a-half year low while new mortgage applications hit their lowest level since February.

Under one scenario, if there is a major shock to the credit markets and the economy, the number of defaults could skyrocket. Home prices could recover in 2009 but from a much lower level. This is what occurred in the Great Depression. However, people usually don't abandon their homes if they can avoid it. With unemployment rates at near record lows and Fed Chairman Ben Bernanke keenly aware of the situation and ready to react, I don't think this scenario is likely.

The other scenario involves a slow re-adjustment back to the long-term averages. Home prices may drop minimally on annual basis for the next five to ten years until we return to reality. People will find that in ten years their home will be worth approximately what they paid today. The home will be a dead asset as opposed to an investment vehicle for long-term appreciation.

Some predict that either scenario will be devastating to the stock market. The first scenario would definitely fit this prediction. However, the second more likely scenario may not. In the late 1980's and early 1990's, we experienced a similar problem with Savings and Loans related to junk bonds. However, the problem acted as overhang to long-term economic growth but did not usher in a secular bear market. There were brief but terrifying downturns in 1987, 1990, and 1994. However, the market continued to rise.

With this announcement the housing market moves one step closer to painful reality. However, do not extend this analysis further than is warranted by the facts and data.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices.

Some economists, including ones cited in a recent story by the New York Times and the authors of "Freakonomics," don't have much use for realtors.

Research cited by the Times showed that people who sold their homes through realtors didn't get a higher price than those who sold it themselves, although agents sold homes faster. Though the researchers caution against extrapolating their data to a nationwide trend, it's likely going to happen. Of course, the National Association of Realtors has its own studies showing the exact opposite conclusion.

The growth of sale-by-owner homes would seem to be an inevitable consequence of the housing slump since people are going to try and squeeze every last dollar of profit from the sale of what is likely their most valuable asset. But realtors don't seem to be suffering.

In fact, they are making higher commissions, according to writer Kenneth Hamey of the Washington Post Writers Group, writing for Realtors Magazine Online.

Properties simply need more marketing muscle to sell, which means that real estate practitioners must work harder and spend more money in order to help the sellers get top dollar," he writes. "Some agents also are adding services, such as staging or professional photography, to get the listings noticed in markets where inventory is supple."

Maybe there are different methodologies in the studies done by economists and the industry. Regardless, I don't think the job of the realtor will ever go away completely. Buying a home is pretty scary, particularly if it's your first time, and it can be comforting to have someone guide you through the process. Plus, there are thousands of details that are too much bother for many people.

Even so, I'll sell my home myself if my wife and I ever decide to move. The economics are just too compelling to ignore.

The Illinois Association of REALTORS® has released a study in response to the proposed Gross Receipts Tax proposed by Illinois Governor Rod Blagojevich. The first phase of the study clearly shows the chilling affect that the Governors' proposed GRT tax would have upon the building and sale of new homes in Illinois. Excuse me please for being so bold Governor, but the housing market is already dealing with a serious slump, perhaps you missed the memo.

The study, conducted for IAR by RCF Economic & Financial Consulting, Inc. of Chicago, estimates that Blagojevich's proposed GRT will cost Illinois home builders and buyers an additional $500 million per year. The study identifies a five tier process of oppression which would compound the cost of a home purchase starting with the materials wholesaler, and further burdening the subcontractor, general contractor, developer and lastly, deeply gouging the consumer. You may access the study findings here.

I can understand that the good Governor wants to plump the state coffers. We all know that's what Governors do. However, this attempted move by Blagojevich smacks of kicking a man when he's down. I guess that's par for the course in Illinois government. I'll file this story with my other "Gary's Governmental Economic Theory" pieces. That file is called: Governments don't run economies, they strangle them. ...and so it goes.

Source:Illinois Association of REALTORS