Dilemma for the Fed as property recovery falters

By Krishna Guha and Sarah O’Connor in Washington

Published: May 28 2009 19:02 | Last updated: May 29 2009 00:32

A record 9.1 per cent of all US mortgages were delinquent at the end of the first quarter, the Mortgage Bankers’ Association reported on Thursday, highlighting the pressure on policymakers as they attempt to engineer a still elusive bottom in the US property market.

Housing starts and sales appear to be stabilising, and homes no longer look expensive. But house prices are still falling rapidly – down 2.2 per cent in March alone, according to the Case-Shiller index. Delinquencies and foreclosures are rising and spreading to so-called prime mortgages.

Now a partial rebound in mortgage rates – in conjunction with the growth of negative equity – threatens to maintain downward pressure on prices, while also limiting the capacity of indebted households to refinance at ultra-low rates.



“The housing recovery hasn’t even started, and it is already at risk,â€