Further Federal Reserve Interest Rate Cuts Needed

Buying the American Dream Millions of American homeowners are in crisis facing the doom of foreclosure or the threat of losing their homes.

Stimulating the U.S. economy and keeping inflation in check is the job of the Federal Reserve Board of Governors, and they tried to help the troubled housing markets and the greater U.S. economy by cutting the chief bench mark interest rate by one-half a point. But the Fed’s job is much more involved than simply that in this new economic era.

The expanding global economy is a multifaceted new world economy led by a large and growing force of U.S. globalization. Intentionally or unintentionally as the world’s leading economic force the Fed’s decisions now affect many more nation’s economic futures.

As forecast by Housing Predictor in March, the Federal Reserve Board of Governors has cut interest rates in order to stimulate the economy. The cut of the chief benchmark prime lending rate of just one half point, however, is not enough to reinvigorate the U.S. housing market. Further rate cuts are needed in order to restimulate the marketplace, according to the Housing Predictor analysis.

Housing Predictor has forecast foreclosures will top 3 million homes through 2009, which will top the U.S. Savings and Loan Crisis of the late 1980’s and will be the worst foreclosure crisis since the Great Depression. The U.S. economy is still showing many signs of being strong, but growing unemployment due in large part to a slow down in the real estate industry is beginning to just be felt. The slow down has widespread consequences and will grow into the overall U.S. economy further if the Fed does not take further actions to cut rates more in an attempt to control the crisis.

Housing Predictor regularly surveys more than 250 local housing markets in all 50 U.S. states and issues updates on local market conditions, including forecasts. The majority of housing markets scattered throughout the nation are experiencing slow downs. Only 12 states now have markets that are appreciating at levels to be included in the Housing Predictor appreciation list, the lowest figure in more than a year.

The most important job of all for the Fed is to protect the nation’s economy and keep the U.S. from falling into a crisis. The U.S. housing market, however, is already in crisis.

After more than five years of appreciation in many markets real estate sales have plummeted in the majority of states markets. The boom days are over in most places with the exception of the housing markets that never experienced a boom at all.

Historically booms are followed by periods of flattening and then falling real estate prices. Booms and busts are accepted as part of normal economic cycles. But with the increasing news on why this housing bust has occurred and all of its many facets, including fast money being traded on Wall Street in the form of financial instruments plus all the loose lending guidelines to make mortgages to just about anyone who was willing to sign on the dotted line, the Fed needs to realize that this is far from a normal cycle.

In order to avert a worsening crisis the Fed needs to cut the prime rate by at least 1% over the next several months to save the U.S. housing market and the greater U.S. economy from further ruin.