On Wednesday, February 27th, Chairman Ben Bernanke of the Federal Reserve warned Congress that he is prepared to lower interest rates again at their next meeting on March 18th. His goals are to keep the economy afloat and shore up the sagging housing market while trying to put a hold on inflation. With the threat of a recession looming over the economy, Bernanke feels another interest rate cut will help to ward off what some think is inevitable.

Since last summer the housing market has dropped considerably, credit problems have worsened and the job market has declined dramatically. Creditors are less willing to give out loans and businesses are tightening their belts and spending less. Energy costs have added to the problem by escalating over the winter. The average consumer is less likely to spend money in fear of not having enough for the basics and does not have extra money to save.

In the past few months the Federal Reserve has tried to help homeowners by cutting interest rates but for many, their efforts were too little too late. Foreclosures on homes continued to rise even as interest rates dropped. In January 2008 the largest one-month cut in interest rates in twenty-five years of 1.25% still did not help to bolster the housing market. Sales of new homes dropped in January for the third straight month.

Many officials believe we are looking at continuing a sluggish economy for the first half of the year. Another fear is a repeat of “stagflation”, stagnant growth combined with inflation, which happened in the 1970′s.

Bernanke still feels that with additional interest rate cuts they will be able to hold the economy steady and ward off a recession. However, he does state that he doesn’t believe the housing market will stabilize until later this year. He also says that home prices may still decline throughout the year and into 2009.

In the interim, people with Adjustable Rate Mortgages (ARMs) are being hit hard and losing their homes. While their rates are dropping, in many cases they are so far behind in their payments they are unable to catch up. With the price of homes dropping, many borrowers now owe more money than their house is worth. Unable to keep up with payments or sell their home, many borrowers are just walking away from their homes.

In 2007, home foreclosures were up 57% from the previous year despite the fact that many lenders are doing whatever is necessary to keep borrowers in their homes. Filings for foreclosure rose by 8% in January 2008 from December of the previous year. While some experts insist that the housing market is stabilizing, the figures show there is still a steady incline in foreclosures and many economists don’t see this changing for several more months.

Great hope for the economy has also been placed on the economic aid plan that will give tax rebates to taxpayers and tax breaks to businesses in an effort to restart spending. The hope is that between the economic aid plan and previous interest rate cuts the economy will pick up in the later half of 2008.

For those who are barely holding onto their homes the pending interest rate cut may be enough so they don’t have to foreclose in the future. Bernanke has already alluded to a possible rate cut also in April in the event the one in March still isn’t enough to jump-start the economy.

For homeowners with ARMs, these rate cuts may be enough to help them keep their homes. It may also help to encourage people to purchase new homes and bolster the housing market. But overall no one foresees the housing market to stabilize or begin to grow until later this year or into 2009.

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