Bank Rescue Won't Lift Home Prices, Stop Foreclosures

Continued downward spiral drives consumer spending down, killing net worth
By Jim O'Neill,  Newser User
Posted Oct 15, 2008 9:46 AM CDT
A realty sign indicating a reduced price on a home for sale is seen in Bedford Heights., Ohio.   (AP Photo/Amy Sancetta)
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(Newser) – Economists are increasingly concerned that the government rescue plan is missing the root cause of the foundering US economy: still-falling home prices, reports the Wall Street Journal. And, while the bailout of banks and financial institutions could ease the pain of the slump, unless help is extended to the housing market, mortgage delinquencies and foreclosures will continue to weigh it down.

Mortgages delinquencies rose to 5% in the third quarter, up from 4.6% a quarter earlier and from 3.5% a year ago; housing prices have tumbled 18% since the first quarter of 2006 and could drop an additional 15% by mid-2009. One economist proposes that the government extend low-interest loans to replace 20% of mortgages; another that the Fed should push mortgage rates down to 5.25% to spur demand.