Tuesday, May 26, 2009

Rising Mortgage Defaults and Falling Home Prices will prolong the slump

By Vincent Del Giudice May 26 (Bloomberg) -- Rising mortgage defaults and falling home prices will prolong the U.S. economic slump until 2011, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. The jobless rate, meantime, won’t return to 5.5 percent, which now represents full employment, until 2013, Zandi said today in an interview on Bloomberg Radio. The government may launch another economic stimulus program in early 2010, he said. “As long as housing prices are falling, we’re not going to get back to normal,” Zandi said. “We’re losing a lot of wealth and there’s a lot of additional pressure on the financial system.” First mortgage loan defaults are running at a 3.7 million annual rate “and rising” compared with 800,000 in 2005, according to Zandi’s estimates. The S&P/Case-Shiller index of home prices in 20 major metropolitan areas decreased 18.7 percent in March from a year earlier, matching the drop in February and a less than the 19 percent in decline in January, which was the most since data began in 2001.

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