"This implies an increasingly negative outlook for the consumer sector given the importance of equity withdrawal and the positive wealth effects housing has provided for the consumer in recent years," said James Knightley of ING Financial Markets to the Independent.

And unfortunately for the world economy, a negative outlook for the US consumer means that things don't look great for the rest of us either...

Soaring US house prices have been the main thing propping up the consumer since the tech boom turned into a bust at the start of the millennium.
As Bloomberg says: "Five years of record home sales and price gains supported the US economy through an internet stock plunge, terrorist attacks on New York and Washington, bankruptcies at... Enron and... Worldcom, US investions of Afghanistan and Iraq and a surge in oil prices."

How has one market managed to bear the weight of all this bad news? Simple. In the past five years, figures from US mortgage behemoth Freddie Mac show that Americans have withdrawn $727.4bn in equity from their homes through "mortgage refinancing" - which is a long-winded way of saying they have "taken on more debt".

But that trick only works when the market is rising. And those days are already long gone.

Joseph Stiglitz, who won the Nobel Prize for Economics in 2001, says: "There's a real problem, not just for the housing sector but for the whole economy. There is a significant possibility of a slowdown so large that it falls into the category of a recession."

It strikes us that you don't need to be a Nobel-winning economist to be able to work that out. But still some pundits are trying to put a brave face on what the International Monetary Fund believes is the one of the biggest threats to the global economy today. "Housing is clearly in the midst of a hard landing and the trough seems to be some way off. However, in the absence of a recession, a national house price crash still remains unlikely," Patrick Franke of Commerzbank told the Independent.

We must admit, we were of the impression that the housing crash would cause a recession, not the other way about. But in any case, one Mike Morgan, Florida mortgage broker, begs to differ with Mr Franke. "Will there be a hard landing? No. Will there be a crash landing? Absolutely!"

Speaking to Whiskey & Gunpowder's Mike Shedlock, he points out that the jobs created by the housing boom are already at risk - and this is at a point when house prices have barely begun to fall. "Loss of hundreds of thousands of jobs created from housing will act like a virus and spread throughout our economy... I spoke with a real estate agent the other day who has not sold a home in three months. His wife works for a title company and was just laid off. He's now sending out applications for a job in his former field of banking." Mr Morgan himself warns that "realistically, if things do not pick up within 90 days, I will close my office and concentrate on my other businesses."

The worries over the housing market make it more likely that the Federal Reserve will hold interest rates when it votes on its latest move later today. But as Gerard Baker pointed out in The Times earlier this week, "US inflation, however you measure it, is now running at about 3% per year. That ought to be too high for the Fed's comfort... inflation as a whole now seems broad-based enough and has enough momentum to withstand a bit of downward pressure from global commodites. With short-term interest rates at 5.25%, in real terms monetary policy can hardly be described as tight by any historic standards. It usually takes real rates - a little over 2% now - of 3-4% or more to bear down significantly on price pressure."

And on Bloomberg we read that unit labour costs rose 4.9% in the second quarter on last year, and gained 9% in the first quarter. Those are the biggest "back-to-back increases since 2000, and a sign of a classic inflation cycle", according to Allen Sinai of New York-based Decision Economics.

Again, Ben Bernanke finds himself between a rock and a hard place. But given the choice between increasing pressure on homeowners on one hand, and risking inflation taking off on the other, we're almost certain he'll choose the latter. That's bad news for the dollar.

And meanwhile, it's probably too late for the housing market. US median house price may fall next year for the first time since the Great Depression, Gabriel Stein of Lombard Street Research tells Bloomberg. Last year, the US savings ratio went negative on an annual basis, also for the first time since the Great Depression.

We imagine that we will be seeing a lot more problems that haven't happened since the Great Depression in the coming months.

Lereah was in Saratoga Springs Monday for the annual statewide industry update, talking to Realtors from across New York.

The expansion that began in November 1991, when mortgage rates fell into single digits, became a boom following the 9/11 terrorist attacks, when trillions of dollars left the stock market looking for a safe haven in real estate, Lereah said.

But 17 interest-rate increases by the Federal Reserve since June 2004, a pullout from the market by speculative investors, and a loss of confidence by trade-up buyers eventually ended the expansion, he said.

This correction is different from any others because it wasn't triggered by a recession, high financing costs or job losses. With unemployment below 5 percent, mortgage rates still below 7 percent and a growing economy, "all you need is a price correction, a price adjustment, to bring the market back," Lereah told the crowd at The Saratoga Hotel & Conference Center on Broadway.

He said the Capital Region experienced "a moderate boom" without the extreme price run-ups or overbuilding seen in parts of California and Florida. As a result, "you don't need as much of a price correction," he said.

The transition to lower prices is already under way nationwide, Lereah said, and will result in a more balanced market than the one that has been dominated by sellers. The transition in the Capital Region likely would be completed by the end of this year, he added.

Sales have tumbled locally even as prices have continued to climb. In July, the median sale price of a single-family home was up 7 percent to $197,250 from year-earlier levels, according to figures from the Greater Capital Association of Realtors Inc. Sales for the month, meanwhile, were down 15 percent from a year ago, the fourth consecutive decline.

"We certainly are seeing a slowdown," said James Ader, executive vice president of GCAR, an Albany-based trade group. But "we haven't seen a huge price correction."

Lereah predicted prices will drop nationally over the next six months, and that each percentage point drop "will bring thousands and thousands of buyers back into the marketplace."

He said the inventory of unsold houses nationally is at an all-time high.

Ader described the inventory of unsold houses in the Capital Region as "pretty healthy.

"We did have some supply problems during the sellers' market," Ader added.

The correction is hitting new construction harder than existing sales, Lereah said, with new-home sales nationally down 16 percent this year, while existing-home sales are off just 8 percent.

He predicted new-home sales would be off a further 8 percent next year, while existing home sales would be flat.

Eric Anderson can be reached at 454-5323 or by e-mail at eanderson@timesunion.com.

The "UFOwatchdog" site claims that this footage "appears near the end of the Ray Santilli produced comedy film about the Alien Autopsy. He tells us:

In Ray Santilli's spoof movie about his now infamously hoaxed Alien Autopsy film, there appears at the end of the film a clip showing what some have said to be genuine footage of a military recovery operation at a UFO crash site. At this point, I think it not a stretch to be suspicious when hearing the name Ray Santilli and the word genuine in the same sentence.

In the grainy clip appearing at the end of the comedy movie Alien Autopsy, you can see military personnel moving around and what appears to be an alien's body being recovered. Phillip Mantle decided to ask around about the footage and here's what he had to say about it in an e-mail:

"Just to let you know, I've contacted one of the executives at Qwerty Films, they were responsible for the ALIEN AUTOPSY movie. The executive in question has informed me that the sequence at the end of the movie, showing an military ambulance and a dead alien etc, was in fact made by them. here is no mystery about it as I suspected and it is NOT original film supplied by Santilli."

We here at SOTT still give a high probability to the idea that the Alien Autopsy video was authentic and that a lot of money changed hands, and/or a lot of pressure was brought to bear on various parties to denounce it, claim credit for it, and generally muddy the waters.

When will the UFO research community get a clue about the ways and means of COINTELPRO and Psy-Ops? The UFO Watchdog guy shoule know better! For more info, see the SOTT FORUM discussion of the Alien Autopsy.