Report Says Housing Crisis to Last Through 2010

A new report from two prominent academic economists predicts the U.S. housing market downtown will not bottom out until 2010.

The report entitled, “The Aftermath of Financial Crises” authored by University of Maryland economist Carmen Reinhart and Harvard economist Kenneth Rogoff, suggested that the nation’s unemployment rate may sink to 11 percent or lower by the end of next year. Such numbers would result in a loss of 6 million to 7 million jobs during that time. The current unemployment rate, as of November 2008, was 6.7 percent.

As the housing and mortgage markets continue their descent and unemployment continues to rise, the national debt will likely rise to historic levels.

“The big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn,” the authors said. “The much ballyhooed bank bailout costs are, in several cases, only a relatively minor contributor to post–financial crisis debt burdens.”

The report, presented at the annual meeting of the American Economic Association in San Francisco, noted that even dramatic actions by the Federal Reserve may not be enough to shorten the downward housing spiral.

“Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s,” they said. “On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors.”

In fact, the Federal Reserve increased its efforts Monday with the purchase of mortgage-backed securities that were backed by Fannie Mae, Freddie Mac, and Ginnie Mae.  According to Fed statements, the central bank may buy up to one-ninth of all the outstanding MBS bonds sold by the three government-sponsored companies. Promises to buy such bonds have already caused mortgage rates to plummet and home mortgage applications to rise.

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One Response to “Report Says Housing Crisis to Last Through 2010”

  1. Flagship Mortgage responded on 11 Jun 2009 at 7:49 pm #

    our country is in a very sad state right now. I really hope the market picks up soon.

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