U.S. Housing Slump: No End In Sight (Oxford Analytica)

Even after U.S. Treasury Secretary Henry Paulson placed government-sponsored enterprises Fannie Mae and Freddie Mac under federal "conservatorship" on Sunday, the outlook for U.S. housing prices is poor.

Unsold home inventories remain at record levels, and foreclosures are increasing at an alarming pace.

Balancing act. Paulson has promised that the government will simultaneously direct Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) to increase "proactively" the availability of mortgage financing and discourage excessive "risk taking."

However, this will entail a delicate balancing act. If the government takes steps to stimulate the mortgage market by, for example, reducing the fees that the government-sponsored enterprises charge banks, this could ultimately increase the government's losses if housing prices continue to fall. Yet any pullback in home mortgage purchases to improve the risk characteristics of Fannie and Freddie could add to the housing market's woes.

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