Further Home-Price Drop Increases Risk to Economy

The Federal Reserve Bank President of Boston Eric Rosengren has revealed that the continued fall in property prices may increase the strain on credit and the ability of the economy to bounce back.

He indicated that: “as long as housing prices continue to fall, the decline increases the risks to borrowers, lenders, markets and the economy.”

There is currently the fear that with property values plummeting, the threat of negative home equity may become a reality that will accelerate the toughest housing recession in twenty five years.

The credit crisis that was triggered by the sub prime mortgage lending, which has resulted in more than $181 billion in asset write downs and credit losses in the eighteen months.

Economic forecasts have concluded the relationship between the economy and the housing market is symbiotic in the current climate, as a stronger economy will see some stabalization in the housing market and visa versa.

Rosengren said that he supporting negotiated workouts between borrowers and lenders to broaden refinancing options as “lenders could write down the loan amount to the current home value, cap losses, avoid the costs associated with foreclosure, and receive a share of any future home appreciation.”

He argued that such moves are “worthy ideas that are being proposed, should be debated by policy makers and interested parties – but without delay.”

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