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Bankers Says More Problems Ahead for Slumping US Housing Market

The sharp increase in long-term U.S. interest rates that has occurred in the past week means trouble ahead for the already depressed U.S. housing market, according to the American Bankers Association. VOA's Barry Wood reports on the implications of long-term interest rates reaching a five-year high of over five percent.

The bankers' association predicts overall growth in the U.S. economy will be 2.1 percent in 2007. That is less than the 3.2 percent growth of 2006. But bank economists do not foresee an outright decline or recession either this year or next.

Stockbroker Scott Brown of St. Petersburg, Florida, says the growth deceleration is mainly the result of weakness in the housing sector. Brown says home owners are seeing a painful correction from the buying frenzy that in many areas sent home prices soaring between 2000 and 2005.

"Home prices in many areas may have doubled and now you're seeing a 10 or 20 percent correction," he said. "It's really going to affect recent homebuyers more than anything. If you bought a home in the last year or two, your net worth in that home is probably going to be down."

Long-term interest rates had held more or less steady even though the central bank had jacked up short-term rates repeatedly between 2004 and 2006. But mortgage rates have risen by nearly three quarters of one percent in just the past two weeks.

Brown, the chairman of the bankers' economic advisory committee, says he expects more delinquencies and foreclosures as owners, already behind in their payments, face higher costs.

"The states with the highest mortgage foreclosures and delinquencies are [in] the upper Midwest where you have problems with the auto industry, or in deep south where you have continued effects from hurricane damage," he said.

Brown does not believe higher rates will translate into a slowdown in consumer spending.

He says of the nine members on the bankers' advisory committee, five believe the Federal Reserve will cut short-term rates later this year, while two believe rates will go up, and two foresee no change. Interest rates this year have been rising in Europe, America and Asia.