Subprime's domino effect

A "For Sale" sign hangs in front of a home in Naples, Fla., a city that a March 2006 survey declared the most overvalued housing market in the US.

TEXT OF STORY

SCOTT JAGOW: The big subprime mortgage lender New Century Financial filed for bankruptcy yesterday. No surprise there. But we probably haven't seen the end of the subprime fallout. Steve Tripoli has more.


STEVE TRIPOLI: A new report out of UCLA says some non-subprime mortgages now appear unstable.

UCLA's David Shulman says that's not good news for the housing market

DAVID SHULMAN: Well the implications of this is, we think that there's another leg down for housing starts, and probably continued pressure on housing prices.

Fewer housing starts harm employment. And lower prices could kill the cycle of consumers using home equity to support spending.

Shulman says that twin squeeze will bring a series of Federal Reserve interest rate cuts.

SHULMAN: Our guess is they'll start in June, when they see the ugly housing numbers.

The UCLA economists now see growth staying slow at least through the third quarter.

SHULMAN: Can you get a recession out of this? Yes. We're not forecasting that, but that is certainly possible.

Think of these ripple effects as something like the free-spending cycle of the old up housing market. Except in reverse.

I'm Steve Tripoli for Marketplace.

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