NEWS RELEASE - May 27, 2008 U.S. Housing Market Shows Little Signs of Recovery   Two housing reports out of the U.S. today appear to indicate that the U.S housing sector remains in a state of malaise, with little to suggest that the end of the slumpis nigh. Also today, the U.S. Conference Board reported a rather sizeable drop inconsumer confidence in May, which brought the level of the index to its lowest point since 1992. First up today was the March S&P/Case-Shiller home prices report, which showed that the year-over-year decline in home prices accelerated to -14.4% from -12.7% in February. The narrower Composite 10 measure posted a bigger 15.3% Y/Y drop. And since these indicators are widely regarded by the markets as the premier measures of existing home price movements in the U.S., the deterioration in both indices suggests that the U.S. housing sector correction has continued unabated in March. Also today, it was reported that new home sales posted a marginal gain in April, rising to a better than expected 526K from 509K in March. This was inline with the 523K expected by the markets, with sales rising for the first time since October last year. The increase, however, was entirely due to the fact that sales in March were revised substantially downwards from 526K to 509K. And as a result of the increase, the inventory of unsold homeshas fallen from 11.1 months in March to 10.6 months in April. The report also showed a recovery of sorts in prices, with the median home price rising by 1.5% Y/Y, significantly up from the -14.1% Y/Y drop recorded in March. We are, however, somewhat suspicious of this substantial turnaround in new home prices and would not be surprised if there were some revisions to this indicator next month. Finally, the U.S. Conference Board reported that consumer confidence declined to 57.2 (its lowest level since 1992) in May from 62.8 in April. During the month, there were also significant drops in both the present situation index (81.9 to 74.4) and the future expectations index (50.0 to 45.7). And to highlight the growing consumer anxiety about rising prices, year-ahead inflation expectations shot up from 6.8% Y/Y to 7.7% Y/Y. In Canada, there were no economic releases, but it is worth noting that the BoC has reduced the size of its bi-weekly liquidity injection (under the PRA program)today from C$2 billion to C$1 billion. The decline in the auction size comes on the heels of BoC Governor Carney's remark last week that the "market turbulence that began last summer has eased in recent weeks." The reduction provides some confirmation that the BoC believes that the worse of the credit crunch in Canada may be behind us. It is worth mentioning, however, that the previous incarnation of the PRA was discontinued prematurely in January when the Bank noted that "pressures in short-term money markets have eased from their earlier peaks", only to be reintroduced two months later in March. Tomorrow, the U.S. durable goods report for April will be released. Markets are expecting orders to fall by 1.5% M/M in April, following the modest 0.3% M/M drop in March. Excluding transportation, the decline in orders is expected to be more measured at 0.5% M/M, following the 1.5% rebound in March. Source: TD Economics