One of the many factors putting pressure on the housing market is a glut of inventory caused by extremely aggressive new construction in recent years. Rather than take responsibility for their own bad business decisions, the homebuilders are lobbying for a massive taxpayer-funded bailout to stimulate home sales. The National Association of Homebuilders is pushing for a $250 billion stimulus package called "Fix Housing First" that would subsidize the interest rates on government backed mortgages and offer people a tax credit of up to $22,000 for buying a home.

The Wall Street Journal points out (subscription required) that "any federal assistance would require policy makers to figure out how to stimulate demand for housing -- the problem at the root of the global financial meltdown -- without artificially propping up home values."

But that's the whole point! Any "stimulus package" will, by definition, artificially prop up homes. If it doesn't, what's the point?

Lawmakers need to stop kidding themselves and make a decision: Either they believe in free markets and the idea that the market is the best mechanism for sorting out problems, or they don't. But a massive bailout aimed at stimulating home buying is completely incompatible with the notion of not propping up home prices.

U.S. housing starts fell again in August, indicating that the worst housing slump in a generation will continue to weigh on the U.S. economy.

Starts of new homes declined 6.2% in August to a seasonally-adjusted annual rate of 895,000, the U.S. Commerce Department announced Wednesday. It was the lowest new home start rate in 17 years (pdf).

Economists surveyed by Bloomberg News had expected housing starts to total a 950,000 annualized rate in August.

Meanwhile, starts of single-family homes fell 1.9% to a 630,000 annualized rate.

Economist Glen Langan said the housing market remains "a terrible market if you're trying to sell a home, and still a risky market if you're thinking of buying a home."

"Conditions vary by region, but in general the U.S. housing market remains in a deep slump. Unless you absolutely have to or you find your 'dream house,' it makes sense to a wait a few months to see if the market stabilizes, mortgage availability factors being equal," Langan said. "In most regions of the U.S. home prices and sales are falling and that's why we're seeing a declining rate of new home starts by home builders."

Picture this: a U.S. neighborhood where no homes are being constructed, for miles.

In the current economic climate, the above could be a snapshot in any region of the country (or, sadly, in every region of the country).

U.S. housing starts fell to a seasonally-adjusted annual rate of 965,000 in July, the U.S. Commerce Department announced Tuesday (pdf). It was the lowest level for housing starts in 17 years.

Economists surveyed by Bloomberg News had expected July U.S. housing starts to total 950,000.

Further, housing starts have declined 29.6% in the past 12 months. Economist Glen Langan told BloggingStocks Tuesday he knows why.

"It doesn't take a Harvard mathematician to deduce this one. Builders are competing for sales with the large supply of foreclosed homes, as well as with home owners in good standing with banks, who are trying to sell their homes," Langan said. "So the great U.S. homebuilder pullback continues."

The U.S. economy is growing at a minuscule rate or is already in recession. Job growth, save a few sectors, is non-existent. Bank mortgage qualifying requirements are at their most rigorous levels in a decade. Investors / readers ask, 'where are the buyers going to come from to spark a rebound in the housing sector?'

Anyone looking for good news in the housing sector will no doubt be keeping an eye on homebuilders Lennar Corp. (NYSE: LEN) and KB Home (NYSE: KBH) when they report second-quarter earnings this week. Both companies are expected by analysts surveyed by Thomson Financial to narrow their losses.

Lennar is expected to report net loss of 45 cents per share, as compared to a loss of 56 cents per share in the previous quarter and a loss of $1.55 per share in the year ago period. While the company hasn't posted a quarterly profit since the first quarter of 2007, the loss per share in the most recent quarter was 51 cents smaller than analysts had expected.

Miami-based Lennar is one of the largest homebuilders in the U.S., and it also provides financial services for home buyers. Even with the housing slump, the company had revenues in the past year of $10.2 billion, but its net loss totaled $1.9 billion. The company's long-term EPS growth forecast is 11.5%, which is less than the sector average and the S&P 500. The consensus recommendation of analysts remains to hold Lennar.

Shares closed Tuesday at $14.72, up from the 52-week low of $11.98 in January. The share price is down 62.9% from a year ago.

The nearly always-on-the-mark Bloomberg News columnist Caroline Baum reminds investors/traders -- and potential home buyers -- that one should not jump into summer by jumping into a home purchase (if you can avoid it).

Baum notes that one has to view April's 6.3% increase in existing home sales in the proper context: housing has been down so much and for so long that every incremental pop up looks like a housing sector recovery. It isn't.

New and existing home sales peaked in July 2005 and September 2005, respectively, but housing starts didn't until January 2006. The result? A massive inventory build.

A record housing recession

Single-family starts are down 63% from their January 2006 peak, easily 'topping' peak-to-trough declines of 38% in 1973-75, and 57% in 1984-1991, and approaching the 65% slide in the housing recession of 1977-1981, Baum says.

As the financial crisis spreads quickly from Wall Street to other industries, two large home builder projects have received default notices. The problems involve developments in Las Vegas, where house prices have collapsed.

A project involving KB Homes (NYSE: KBH), Lennar (NYSE: LEN), and Toll Brothers (NYSE: TOL) has failed to make interest payments on $765 million in debt.

According to The Wall Street Journal (subscription required), the project is spear-headed by a private company, Focus Property Group.

It is not clear how many other large real estate developments involving public home builders are facing near-term margin calls, but with the falling price of real estate, the problem in Las Vegas is unlikely to be that last one. That means that already weakened firms could face a credit crisis of their own as home prices continue to drop and the potential value of homes under construction face going on the market for a fraction of what they may have brought just a year ago.

Some of the large home building company stocks have lost over two-thirds of their value over the past year, and that may only be the beginning.

Douglas A. McIntyre is an editor at 247wallst.com.

Home improvement giant Home Depot Inc. (NYSE: HD) will get its chance to impress Wall Street tomorrow morning when it reports its second quarter numbers before the market opens. It has been a tough couple of months for home builders recently, and tomorrow morning we will see just how hard the slowdown has been for Home Depot.

If recent history is any indication, it could be an ugly day for the Atlanta based home retailer. The last time the company reported earnings was back on May 15, when it disappointed and missed estimates by 6 cents, showing earnings of 53 cents per share verse analyst estimates for 59 cents during its fiscal first quarter.

Out of the last four quarters, the company has managed to match estimates just one quarter. I wish I could say that I think this will be the quarter that the company turns things around, but I don't. The housing market has just been too brutal, and home builders have been too hard hit to put too much confidence in Home Depot's ability to come through this past quarter. Let's hope that I am wrong.

This week is a very big week for housing stocks. Wednesday, Wall Street will hear the home sales report from the National Association of Realtors. According to the AP, the street is looking for 5.85 million homes resold in June versus 5.99 million resales in May. On Thursday, the Commerce Department will report new home sales. Again, the consensus is looking for a decline from May's figures.

I think that the subprime blow-up alongside falling real estate prices has forced the market to become very cautious in these names, and rightfully so. The uncertainty in earnings and book value writedowns to come has resulted in a situation where the risk may already be priced in. As a result, I tend to believe that any bad news from either numbers report is already priced in, and the stocks won't get killed if the numbers are ugly. But the entire sector will probably move very strongly if either of the numbers come in above consensus.

Traders might be interested in playing this number by picking up calls in their favorite home building stocks or a home building ETF. Keep in mind, superstar hedge fund Moore Capital owns Beazer Homes (NYSE: BZH) while Monish Pabrai and Greenlight Capital own MDC Holdings (NYSE: MDC). If you don't like any particular home builder, but believe in the priced-in thesis, you could pick up the Streettracks Home building ETF (AMEX: XHB). Best case (a good number from either report), the options will probably move rather significantly, worst case (two bad reports) I don't think they will get hit too hard.

I've told BloggingStocks readers several times to sit and wait on the home builders, at least for the time being, because the news flow coming from the group remains overwhelmingly negative. This thesis is not very contrarian, in fact it seems to be the going opinion on Wall Street, but more importantly it's the only take that makes sense to me at this point simply because I think the real estate markets became so overheated several years ago that the diffusal period for this bubble is not over yet.

Today another piece of news quantified this theory -- the New Home Sentiment Index. This index is a measure of builder's attitudes towards the current market. This month the figure came in at 24, the lowest reading since January 1991. This was significantly worse than the expectations for a reading of 27.

As a result of higher mortgage rates (30 year mortgage rates sitting right around year's high), the demand for big home builders decreases according to the AP report. In addition, although the National Association of Realtors is expecting an increase in new home sales next year, they still expect the total figure to be below 2006 levels.

Although all this news could be indicating a bottoming-out in the homebuilding sector, I still think it's too risky to jump in unless an investor tries to hedge out short term risk. He could do this either by purchasing puts on homebuilding stocks he owns or by shorting the Streettracks Homebuilder ETF (AMEX: XHB) if he believes his favorite homebuilder is superior to the average.

In a 13-G filing made yesterday, hedge fund Moore Capital declared a 1.99 million share position in Beazer Homes (NYSE: BZH), good for roughly 5.1% of the company. Although Moore was started by legendary global macro trader Louis Bacon, there are now several different strategies and funds operating under the "Moore Capital" name. I'd argue that the Beazer position is attributable to some sort of value-oriented group at Moore, although Moore seems to have a pro-homebuilding macro-like thesis as the portfolio owns a position in the home builder ETF XHB according to the Stokpickr! page on the fund.

The value-thesis behind BZH seems to be rather clear, at least in my eyes. All of the multiples for the company make any contrarian-minded value investor salivate, especially the .57x book value multiple. However, yesterday's WSJ "Heard on the Street" column ($) made it clear that book value is losing its importance in signifying value in home builders because it is losing its accuracy. BloggingStocks's Zac Bissonnette gave an interesting take on the piece.

Beazer Homes USA Inc (NYSE: BZH), following in the footsteps of other home builders, has been reporting awful results. However, to add more fuel to the fire, a report by the Charlotte Observer wrote the FBI and the U.S. attorney's office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week. OUCH!

Everyone is going after this homebuilder. This is as bad as the political backlash following the tech bubble imploding which led to Sarbox.

Look for other district attorneys around the country to start going after other homebuilders and their relationships with mortgage brokers and lenders. Do you think homebuilders reduced lending standards in order to get rid of excess inventory? Why not when you can dump the loan in the secondary market.

The housing industry is getting uglier and uglier, as we have been blogging about for a long time. No need to bottom fish yet. Wait for the political backlash to crescendo before looking at this group again.

The nation's homebuilders are feeling a bit more confident these days.

The National Association of Home Builders/Wells Fargo Housing Market index rose in January to 35, its highest level since July, according to a press release. Even so, their confidence doesn't seem to be overflowing.

This post is written as part of AOL Money & Finance's Best & Worst 2006. Cast your vote for the most overused buzzword.

The housing bubble has hit close to home for me, literally. Someone has been trying to sell a house down the street from me for about five months. That's a sea change from two or three years ago when properties in my neighborhood seemed to get snapped up the minute someone slapped a for-sale sign on their lawns. Often we suburbanites would gasp in amazement at the prices that people got for homes similar to ours. Even with this market uncertainty, I bet I could get double the price I paid for my house -- which is hardly a McMansion -- if I wanted to sell. The flip side is that I would have to pay a high price for a new house. But even though I have seen the phenomena first hand, I hate the phrase "housing bubble." Much like Web 2.0, it has evolved this year into a vague buzzword that probably confuses most average investors. The National Association of Realtors argues that there's no bubble. "We've never seen a housing bubble, which -- if we compare to stock bubbles -- would be a prolonged double-digit collapse from unsustainable prices," said Walter Molony, an NAR spokesman, in an email interview. "What we have is a deflating balloon."

Economists including Dean Baker, co-director of the Center for Economic and Policy Research, disagree. Executives at Toll Brothers, Inc. (NYSE:TOL) and other home builders have spoken of a slowdown, even though they seem to be privately more optimistic, according to the AP. So what's going on? I wish I knew. There is no doubt that homes aren't fetching the prices that they did and that people like my neighbor are having more difficulty selling. Prices for existing homes fell at a record rate in October, their third straight monthly decline. I tried and failed to come up with a better catch phrase than housing bubble. "Those people had to be idiots to pay THAT much for THAT house" and "Do you believe how much our house is worth today?" just don't have the same ring to them.

Jonathan Berr is the editor of the blog http://www.desperateinvestors.com.