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Housing Slump Expected to Continue in the Short Term

[Oct 16, 2007.]


The housing slump shows no signs of abating, according to officials at the country's biggest housing and mortgage companies. These executives are making their predictions based upon the high number of foreclosure filings and the sagging home sale market.

At an investors conference in San Francisco, Countrywide Financial Corporation Chairman Angelo Mozilo said, "It is imperative that liquidity return to the mortgage market and that the tide be turned in order to stabilize home prices. A failure to do so will not only imperil the financial lives of hardworking American families but will inevitably impact our broader economy."

The Federal Reserve's decision to cut a benchmark interest rate could have some positive effect on the housing market. The reduction marks the first cut in 4 years' time. The rate cut should make it easier for potential homebuyers to obtain loans. In addition, homeowners should find it less expensive to obtain home equity lines of credit.

It's too soon to say, however, whether the rate cut will have a significant impact on the foreclosure rate. Still, those with adjustable rate mortgages may be able to breathe a sigh of relief. They may also find that the possibility of default is declining as a result of the interest rate cut.

Still, some observers are noting that the Federal Reserve rate cut won't end the subprime loan crisis which has sent the housing market into a tailspin. They note that, in order to temper the crisis, lenders should return to standard underwriting practices. They also say that the housing market may actually get worse before it gets better.

As evidence, they point to August foreclosure filings, which were double what they had been at the same time last year. Filings involve repossessions, auction sale notices, and default notices. A number of experts predict the housing crisis will continue until the middle of next year.

Julie Ann Amos
October 16th 2007

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