Worries about the sorry state of the U.S. economy have officials from the Obama administration digging deep into their bag of tricks to stop the skid before it slips into a double-dip recession.
Their latest move was announced Sunday when Housing and Urban Development Secretary Shaun Donovan said the White House plans in the next few weeks to set up an emergency loan program for the unemployed and a government mortgage refinancing effort.
Despite all the monetary and fiscal firepower the U.S. Federal Reserve and the Treasury have deployed, economic growth has slowed to an agonizing pace. The slowdown has hit the housing market particularly hard, as evidenced by home sales that dropped to record lows in July.
"The July numbers were worse than we expected, worse than the general market expected, and we are concerned," Donovan said on CNN's "State of the Union" program. "That's why we are taking additional steps to move forward."
The administration will launch a Federal Housing Authority program to help borrowers who are struggling to pay their mortgages refinance their loans. Additionally, the government will start an emergency homeowners' loan program for unemployed borrowers so they can stay in their homes, Donovan said.
"We're going to continue to make sure folks have access to home ownership," he said.
Cheaper prices and record low mortgage rates have failed to revive the moribund housing market. Sales of new homes in the U.S. unexpectedly fell to an annual pace of 276,000, the weakest since the data began in 1963. Sales of existing houses plunged by a record 27% in July as the effects of a government tax credit faded.
Figures from the National Association of Realtors last week showed home sales plunged to a 3.83 million annual pace, the lowest in a decade and worse than the most pessimistic forecast of economists surveyed by Bloomberg News. Demand for single-family houses dropped to a 15-year low and the number of homes on the market ballooned to 12.5 months as record foreclosures added to the problem.
U.S. home prices fell 1.6% in the second quarter from a year earlier, following a 3.2% decline in the first quarter, the Federal Housing Finance Agency said last week in a report.
The Obama administration also is mulling over whether to push for another homebuyer tax credit, but it hasn't come to a decision Donovan said. The $8,000 homebuyer's tax credit pushed sales forward as homebuyers rushed to qualify before the measure expired April 30.
"All I can tell you is that we are watching very carefully," Donovan said. "We're going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers."
Meanwhile, the weakening economy was the dominant topic at the Federal Reserve's annual conference in Jackson Hole, Wyoming.
In a speech to central bankers and economists, Federal Reserve Chairman Ben Bernanke said the central bank "will do all that it can" to keep the recovery going.
The pressure for further action may increase this week as data on hiring, manufacturing and household purchases are expected to show that the economy cooled further in August.
The prospect of a renewed effort to drive down already super-low borrowing costs is raising questions about whether the central bank's actions can sustain the faltering recovery.
There is growing sentiment both inside and outside the central bank about whether the risks of big Treasury bond purchases outweigh the benefits.
"There's now a cost-benefit analysis for future actions which I'd contrast with the 'whatever it takes' philosophy of the crisis," Stanford University Professor John Taylor, creator of an interest-rate formula used by central banks, said in a Bloomberg interview. "The benefits of additional quantitative easing are quite small."
A lack of jobs and slack consumer demand are the biggest threats to the economic recovery. But unemployment, currently hovering at 9.5%, shows no sign of coming down and manufacturing, which had led the recovery, appears to be running out of steam.
"We've got to do something different because what they did before hasn't worked," Allen Sinai, chief global economist at Decision Economics, told Reuters at the Jackson Hole event.
Even Bernanke raised caution flags about the effectiveness of further action from the Fed, saying in his Aug. 27 speech that the Fed alone can't keep the recovery going.
"Strong and stable" growth will "require appropriate and effective responses from economic policy makers across a wide spectrum" as well as private-sector leaders, he said.
News & Related Story Links:
State of the Union
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- Money Morning:
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