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Bailout Unlikely To Resuscitate Housing

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By ALAN ZIBEL and ALEX VEIGA

The Associated Press

Published: October 4, 2008

WASHINGTON - The federal government's $700 billion bailout of the financial industry could help homebuilders and mortgage lenders, but is unlikely to bring fast relief to anybody trying to buy or sell a house anytime soon.

The Treasury Department's future purchases of sour mortgages and other securities from banks are designed to inject cash into the credit markets and restore confidence among investors and consumers.

But that may have only a slow and gradual impact on home prices, record foreclosures and the more than 10 month supply of unsold homes.

"What the bailout does is keeps a bunch of really bad future events from happening," said Scott Shane, an economics professor at Case Western Reserve University. "It doesn't make ... what's going on today much better."

Many analysts say U.S. home prices - down 20 percent from their peak in July 2006 - have farther to fall, and must hit bottom before demand picks up. The bottom in prices could be a year or more away.

"This is a step ... to put the grease back into the machinery," said Gerard Cassidy, an analyst with RBC Capital Markets. "This is not the panacea."

Jim Gillespie, chief executive of Coldwell Banker, said he hopes that lower prices, combined with the government's actions, will jump-start stagnant demand.

On Friday, the national average interest rate on a 30-year mortgages was 6.2 percent, down from 6.3 percent on Thursday and roughly equal to last week, according to financial publisher HSH Associates.

Meanwhile, mortgage finance companies Fannie Mae and Freddie Mac are rolling back fee increases imposed to shore up their finances.

Unlike the bailout, "it's something that directly impacts mortgage lending right now," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication.

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