Here’s a question for the stockmarket bulls poking their heads over the parapet: if the US housing market has just gone through its biggest yearly fall on record, and mortgage rates have fallen to four year lows and there’s forecasts of more of gloom to come in 2008, why are the bulls still murmuring buy, buy, buy?

And how will an “economic stimulus package” which features rebates of $US600 to $US1,200 to around 117 million US families stop the US economy from dipping further this year, especially as the tax rebates won’t be made for another five months?

Both reasonable questions which have been ignored by many investors who are desperately seeking a way through the current gloom and this week thought they spotted the upturn, not with the Fed’s 0.75% rate cut but in a politician’s attempt to get struggling bond insurers bailed out by their clients — the banks.

The National Association of Realtors said prices of existing houses had their biggest ever year on year fall last month — the median price of homes fell nearly 6% from December 2006. And the median price for all homes sold in 2007 fell 1.3%, the first time that the prices have fallen over a year since records started being kept in 1968.

The news comes a day after Merrill Lynch forecast a 15% drop in prices this year, while housing starts will probably be 30% down on 2007’s levels by the end of the year. If it happens, will put further pressure on the value of US mortgages, subprime loans and the balance sheets of US banks.

The Realtors group itself forecast a 5.3% drop in home prices this quarter, compared to the first quarter of 2007. If that happens it will be the biggest quarterly fall on record.

Existing home sales continued to fall in December, slipping 2.2% from November and 22% down from December 2006. Sales of all homes fell 12.8% across 2007, another unwanted record.

Purchases of new houses, which account about 15% of the market, fell to a 12 year low in November while housing starts in December fell to a 16 year low.

US mortgage rates fell to four year lows last week with 30 year fixed loans at 5.48%, while the 15 year loan averaged 4.95%. But the number of loans being done remains depressed — how are the banks going to make money if people won’t borrow?

In fact, if you are of a mind to, you can borrow money for a loan and put it into Citigroup preferred stock at 8.5%, or Bank of America preferred convertible shares at around 7.5% to 8%.

By the way Bank of America is now raising $US13 billion in capital from the market because it needs to rebuild capital destroyed by its adventures in dud subprime loans and associated credit securities, not to mention loans to private equity players that can’t be refinanced.