Financial experts addressing a home builders conference in Washington Wednesday issued grim forecasts, suggesting that the U.S. housing slump is likely to get worse and continue for at least another year. VOA's Barry Wood has more.
The mortgage finance specialist at the Wells Fargo Bank in Minneapolis, Scott Anderson, says the crisis in the housing sector is getting worse. He told a National Association of Home Builders conference home prices will continue to fall. "We're going to see major declines in home prices, the likes we haven't seen since the great depression in this country (of the 1930s) over the next year. We're just starting on that process for the declines," he said.
Earlier Wednesday the National Association of Realtors announced that sales of previously owned homes fell eight percent in September, a decline twice as steep as had been predicted. Anderson of Wells Fargo Bank says that downward trend will continue. "Home sales are still plunging in markets where underwriting standards were lax, risk-taking was high, and home prices to income ratios were even higher. Florida and Nevada are seeing the most rapid declines," he said.
America's real estate and home loan market has been in decline for many months. During the sharp run-up in home prices that continued until 2005, mortgage lenders relaxed standards and promoted low interest loans to permit buyers to afford homes whose prices had dramatically risen.
In many cases, buyers did not understand that the low variable interest rates would eventually rise to higher levels, greatly increasing their monthly payments. That is the part of the reason that home loan delinquencies and foreclosures are on the rise.
Frank Nothalf is chief economist at Freddy Mac, the Federal Home Loan Mortgage Corporation. "Just between the first six months of 2006 to the first six months of 2007, the number of sub-prime loans entering foreclosure doubled nationwide. And in some markets it was substantially higher," he said.
Subprime loans are loans extended to higher-risk debtors.
Alarmed at the prospect of so many people losing their homes, Congress is preparing legislation to address the problem.
The Federal Reserve, which had been raising interest rates between 2003 and 2005, cut rates last month. But mortgage interest rates remain more or less unchanged and with credit markets in turmoil it is now increasingly difficult to obtain a fixed rate mortgage loan.