PIMCO (Pacific Investment Management Company) was founded in Newport Beach, California, in 1971 by Bill Gross with $12m in assets under management and has more than $1trn in assets under management. It has more than 1,200 employees in offices in Newport Beach, New York, Amsterdam, Singapore, Tokyo, London, Sydney, Munich, Toronto and Hong Kong and was acquired by the German financial group Allianz, in 2000.

US new home sales were reported on Wednesday to have fallen in July to the lowest level since the current statistics series began in 1963. Meanwhile, Bill Gross, the founder of the trillion dollar bond fund manager PIMCO, supports a continuing federal guarantee of mortgages.

The rate of new home sales fell 12.4% in July from a month earlier to an annualised rate of 276,600 a year, the US Commerce Department said. Purchases fell in all four regions, led by a 25 percent drop in the West. The supply of homes at the current sales rate climbed to 9.1 months’ worth from 8 months in June. There were 210,000 new houses on the market at the end of July, the same as the prior month. On Tuesday, existing home sales were reported to have fallen to a 15-year low, also partly attributable to the ending of an $8,000 first time buyers' tax credit in April.

Almost a third of existing home sales in July were bank-related distress sales and besides the end of the tax credit, the uncertain economic situation is impacting sales sentiment.

Bill Gross, the founder of the trillion-dollar bond fund manager PIMCO, says in his September investment outlook that the federal mortgage financiers, Fannie and Freddie, which were bailed out in 2008, had blown up because of the private/public nature of their charter, which incentivized executives and stockholders to go for broke with the implicit understanding that Uncle Sam would be there as a backstop should anything go wrong. "If you eliminated the private incentive and provided a tighter regulatory watchdog, we would have no more 'liar loans' or 'no docs' and a much sounder foundation for future homeowners and investors. The private market, to my mind, had really lost its claim as the most efficient and judicious arbiter in this particular case. Markets and private incentives without proper guardrails were as threatening to a sound economy in the 21st century as too much regulation and government ownership proved to be in the 1970s," Gross writes.

He says 95% of existing mortgage creation over the past 12 months were government guaranteed. The private market was nowhere to be found because they charged too much. It was the cost of private origination and securitization, perhaps more than any other factor, that justified government involvement. Prime, but non-conforming, mortgages (jumbos, insufficient down payments) were being purchased by PIMCO in the hundreds of millions of dollars every week, but at yields of 6, 7, and 8%. He says few, if any, could afford a new home at those interest rates. "If you were a believer in the dominance and superiority of private markets, how could you deny the signal that markets were sending - -  that the risk was too high given the substantial losses of recent years?" he asks.

The bond fund manager says the necessity of government backing is substantially based on the commonsensical, psychological, indeed sociological observation that the great housing debacle of 2007–2010+ would have a profound influence on homebuyers and mortgage lenders for decades to come.

Gross writes: "What did we learn from the Great Depression, for instance: Americans, for at least a generation or more, became savers - - dominated by the insecurity of 20%+ unemployment rates and importance of a return of their money as opposed to a return on their money. It should be no different this time, even though the Great R. is a tempered version of the Great D. Americans now know that housing prices don’t always go up, and that they can in fact go down by 30–50% in a few short years. Because of this experience, private mortgage lenders will demand extraordinary down payments, impeccable credit histories, and significantly higher yields than what markets grew used to over the past several decades. Could an unbiased observer truly believe that housing starts of two million or even one million per year could be generated under the wing of the private market? In front of Treasury Secretary Geithner and the assembled audience (in Washington DC last week), I said that was impractical. Let me amend that to 'ludicrous.'”

Bill Gross, founder of PIMCO, shares his outlook on stocks, bonds and the housing market:

Insight on whether the American dream of homeownership is dying, with Shari Olefson, Fowler White Boggs; Jonathan Miller, Miller Samuel and CNBC's Diana Olick: