August was the worst month for sales of new homes in the United States over the last seven years; figures released on Thursday 27 September by the government have shown. During the past year, sales of new homes have dropped a staggering 21 per cent, forcing builders to announce huge discounts and incentives to sell the houses they''ve completed.

For August, the government has said, the median price of a new home sold was $225,700 — 7.5 per cent lower than the same period last year — the biggest drop in 37 years. The National Association of Realtors has said it is the first national decline in the median house price since the Great Depression.

The downward move more than erased July''s brief upward bump in new home sales; it has to do with the credit issues that rocked the stock market last month.

Existing sales were down an astounding 4.9 per cent last month. That''s the worst monthly performance since March. The official sales pace for the month was a seasonally adjusted annual rate of 795,000 units; well below the 867,000 economists were betting on and the slowest since June 2000.

Poor prognosis?
Overall, it presents a gloomy picture of the overall market this year. It means that the problems in the mortgage finance arena are taking a further toll on buyer demand, and weighing heavily on builder confidence measures. The US housing market has been in a steep decline, hounded by falling prices and sluggish demand.

Housing major KB Home reported a wider-than-expected quarterly loss on Thursday 27 September. It said write-downs for land values and 28 per cent fewer homes sold were responsible, as an increasing supply of new and existing homes and tighter mortgages kept buyers sidelined.

The No: 5 US home builder reported a net loss of $35.6 million or 46 cents per share for the third quarter ended 31 August, compared with a year-earlier profit of $153.2 million, or $1.90 per share. The loss came even after accounting a $443 million gain from the sale of KB''s 49 per cent stake in its French unit, Kaufman & Broad SA. Losses from continuing operations were $478.6 million or $6.19 per share.

Recovery not on the horizon?
"At this time, we see no signs that the housing market is stabilising. Rising foreclosure rates are intensifying the problem of surplus inventory and will likely drive further home-price reductions, KB Home''s chief executive Jeffrey Mezger said in a statement.

Chief economist of the National Association of Home Builders David Seiders is not hopeful of an early recovery. In a press release, he said, "We now expect to see home sales return to an upward path by the second quarter of 2008." He expects housing will begin a gradual recovery process by the third quarter of next year, at which point "the market will have substantial growth potential".

Realtors face reality
Realtors are also facing the heat. Foxtons, a discount real estate agency that brokered home sales for a 3 per cent commission, shut its United States operations on Thursday and said it might file for bankruptcy protection. The West Long Branch, New Jersey-based company with realty offices in New York, New Jersey and Connecticut said it had laid off 350 of its 380 employees.

"We have been battling against a real estate market that recently has turned into a sharp decline, and the company no longer has the liquidity to operate," the company''s senior vice president and general counsel John D Blomquist said in a statement.

Sub-prime supervision
The general perception, that the housing slump was exacerbated by a crumbling mortgage market, has led to lawmakers in Washington looking for someone to blame. This is bad news for credit-rating agencies that gave what now seem to be unrealistically high ratings to mortgage securities that faltered even faster than the falling housing market.

Ratings agencies like Standard and Poor''s (S&P) are being blamed for a near-complete disconnect between mortgage-backed securities'' ratings and results. But experts are also blaming the market regulator; the Securities and Exchange Commission''s (SEC''s) weak oversight authority.

Ratings that grate
In its turn, the SEC is looking at whether the fat fees that big Wall Street bond issuers pay Moody''s Investors Service (MCO), Standard & Poor''s and others to grade their securities "unduly influenced" those ratings. Many in Congress feel that ratings agencies are central to the debacle; that they are driven more by money than by responsibility and ethics.

Lest we forget, the ratings agencies botched their calls earlier too, in the Orange County and Enron scandals. But they escaped most of the civil lawsuits, regulatory penalties, and legislative punishments borne by the rest. And, despite the rhetoric and a new ratings law passed last year, the SEC has very little real authority to supervise or penalise errant ratings agencies. It doesn''t even have the power to inspect them.

No supervision?
The power Congress gave the SEC last year to regulate national ratings agencies was actually designed to increase competition in an industry dominated by three big agencies — Fitch, Moody''s, and S&P — that held the SEC''s coveted approval as Nationally Recognized Statistical Rating Organisations (NRSRO), until just a few weeks ago.

The idea was that more competition would lower costs and improve the quality of the ratings, and the new law streamlined the registration and approval process for smaller ratings agencies. Egan-Jones, for example, has been waiting nine years for the SEC''s approval. Now that the heat is on the big three, "Our application is actively being worked on," says a company representative, "it wasn''t before, but now it is."

Who will rate ratings agencies?
The new law gives the SEC some power to look at policies and procedures of ratings agencies, but virtually no power to review or penalise them if the quality of the ratings is poor. Now, SEC chairman Christopher Cox, a California Republican who has taken an openly pro-business stand on many issues in the past, says he thinks the SEC can use its anti-fraud regulations to limit a ratings agency''s authority or revoke its NRSRO status.

That, to use an old, old cliché, is like closing the stable doors after the horses have bolted. There are real and serious problems. Many people have lost their homes. Lenders have absorbed more risk than they anticipated. Holders of structured products face serious problems with their instruments.

The complexity of the products means that there are a lot of people involved at different stages of their production. That means almost everybody is pointing a finger elsewhere.

Executives from S&P and Moody''s conceded to Congress on 26 September that they had probably miscalculated their mortgage ratings. But, not surprisingly, they say it was unintentional and not influenced by the fees. But surely they knew — or should have known — that many of the loans they were endorsing were fraudulently obtained.