Federal Reserve Predicts Continued Housing Slump
By Jay Fleischman, New York Bankruptcy Lawyer on May 19, 2007 in General Bankruptcy Information
Federal Reserve Chairman Ben Bernanke warned that the housing market will continue to struggle. Speaking at the Chicago Fed Bank’s annual conference on bank structure, Bernanke said curbs on subprime lending “are expected to be a source of some restraint on home purchases and residential investment in coming quarters.”
Curbs on subprime lending “are expected to be a source of some restraint on home purchases and residential investment in coming quarters,” Bernanke said. “We are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets.”
In spite of this warning, the Fed chairman maintained his forecast that the slump in housing won’t have a broader impact on the economy because banks are reducing credit to the market for securities backed by subprime mortgages.
What does this mean to the American consumer? It means you may not be able to sell your home for as much as you had otherwise been led to believe. It means it will be tougher to get a new mortgage. And it means that you won’t be able to use your home as an ATM anymore, pulling out money in a constant cycle of refinances.
Is that bad? Nope, not in my opinion. Perhaps this will help consumers get to the heart of their financial problems and take a hard look at ways to bring spending in line with income. Without a constant source of refinance money, consumers may not be able to buy that new car every year. High priced electronics bought on credit, fancy vacations that cost a small fortune, and other luxuries may fall by the side of the road.
The more realistic impact? Without the ability to continue to live off their refinanced mortgage money, Americans will realize that they can’t afford their credit card bills anymore. They’ll come to understand that they’ve been living off of borrowed money and borrowed time for far too long.
Stay tuned, folks - it’s gonna be a bumpy ride.
Source: Chicago Sun Times
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