US housing continues to weaken as the financial crisis of the past 2 months takes its toll of prospective homebuyers. Yesterday's Case-Shiller index of house prices showed a "broad-based decline" in September, posting record annual declines of 17%.
Similarly, the above chart from the ACC's weekly report shows new housing starts (red line) at a record low since they were first recorded in 1959. Building permits (blue line) are a leading indicator of future activity. These also remain weak, and are 40% down on 2007.
In response, the US Federal Reserve has committed $800bn to support mortgage finance. But as the blog has now argued for over a year, such measures do not address the real issue, which is that long-term interest rates are too high. This is because banks are scared to lend to each other, and so the LIBOR rate doesn't respond to changes in short-term rates.
Nouriel Roubini has some useful suggestions this morning as to what could be done to improve the situation, including the direct purchase of long-term credit instruments by the Fed. The blog hopes that the Obama team is already working on how to put such ideas into practice.