Recipe For Hard Times...

(Reuters) - "Investment bank HSBC has revised downward its forecast for 2007 economic growth and cautioned that the risk of an outright recession is growing as a retreat in housing threatens household balance sheets."

"The company argues that while corporate profits have remained sky-high, the incomes of most Americans have effectively fallen over the last 18 months."

"That, say economists Stephen King and Ian Morris, could be a recipe for hard times in an economy that relies on consumers for over two-thirds of its strength."

'"Never before have households been so hard hit at a time companies are doing so well," the two economists said in a research note to clients. "So it's likely that the U.S. could slow down quite a long way."'

"Making things worse, the bank says, a mammoth budget deficit means the U.S. government has "less room to maneuver" if the economy does skid off track."

"In the last recession, a massive round of tax cuts and a super-loose monetary policy helped the economy get a second wind. Americans will have no such luck this time around, King and Morris warn."

'"The housing correction is just in its early stages now," said Joseph Carson of AllianceBernstein, who forecast a 5% decline for 2007. "Existing home prices have come down to no-change on a year-to-year basis. For new homes, prices are below year-ago levels when you include added features. The prices will have to go lower to give demand a lift in short term."'

"Mr. Carson expects broad-based difficulties throughout the nation. "Affordability is an issue across the board," he said, adding he believes a major correction is inevitable. "It's pretty clear now that national home prices will drop to correct housing imbalances," said Scott Anderson of Wells Fargo & Co."

“A U.S. housing sector downturn may last for years because of excess supply and faltering consumer confidence stemming from worry over U.S. foreign policy and federal government competence, the head of nation’s largest builder of luxury homes said.”

“Robert Toll, CEO of Toll Brothers said the current slump in prices and sales volumes was more severe than the ’soft landing’ for housing predicted by some analysts. He said the market recalls the recession of the late 1980s when prices took more than three years to recover. ‘This isn’t a soft landing, it’s harder than a soft landing,’ Toll told Reuters.”

‘The U.S. inventory of unsold existing homes rose to 3.86 million in July, the highest ever, according to NAR."

“Short-term housing investors, so-called ‘flippers,’ are exiting the market in droves and putting their properties up for sale, making for ‘an increasingly challenging housing market,’ KB Home Chief Executive Bruce Karatz said in a statement yesterday that detailed the builder’s 43 percent drop in new orders.”

Bloomberg. “KB Home, the sixth-largest U.S. homebuilder, and Beazer Homes USA Inc. said profit will fall short of earlier forecasts as demand wanes. ‘The housing bubble is breaking pretty hard here,’ said (analyst) Michael Bugno.”