The US Housing Slump, who’s to blame?

The President of the Federal Reserve Bank (Cleveland) Sandra Pianalto said that the housing slump in the U.S. has been cause by “faulty assumptions and bad choices” by mortgage-market participants including lenders, borrowers, brokers and appraisers.

The current state of the property market in the US is as a result of “faulty assumptions and bad choices” with the onus firmly of the regulated professionals and institutions who have mismanaged and underestimated.

The recent market boom seemed like a win-win situation for both the borrowers and lenders. The climate of continued and forecasted growth was always a contencious issue and Pianalto firmly addressed this problem in a speech given in Cleveland.

The pattern highlighted was that “for many of the players in the mortgage market, optimism turned into euphoria, calculated risk-taking turned into over-reaching, and healthy doses of skepticism turned into overconfidence.”

Speaking for the first since the central bank’s Federal Open Market Committee decided Jan. 30 to cut interest rates, it is clear that Pianalto understands the difficulties ahead and has called for a “comprehensive approach”.

In order to refocus the mortgage market, caution has been placed on over regulation. It is hoped that this in turn will facilitate the stability of the property market.

As long as regulation is used wisely and sparingly in order to avoid stifling the credit markets, the hardships currently being felt will disappear.

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