Congress throws a lifeline to drowning US housing sector

WASHINGTON, July 26, 2008 (AFP) – A US housing sector that has yet to hit bottom after its worst slump in decades secured a lifeline Saturday from a massive government aid package that is arriving none too soon, analysts say. The aid package expected to be signed by President George W. Bush comes with the housing sector still weakening from a nearly two-year-old slide and data showing home prices falling further, inventories rising and many buyers waiting on the sidelines.

Some analysts say the market is frozen as a result of tight credit and buyers paralyzed by concerns that prices will continue to fall.

Moreover, many homeowners are unable to sell their properties to “trade up” as they would under normal market conditions.

“As more homes are dumped on the market, home prices fall further, driving further mortgages underwater, leading to further foreclosures, further homes dumped on the market, and further home price declines,” said economist Richard Kelly at TD Bank.

The housing rescue plan “hopes to help stop the self-fulfilling prophesies of doom, gloom, and liquidity vacuum.”

US home foreclosures rose nearly 14 percent in the second quarter and were up 121 percent year-over-year, according to a