US Repossessions Hit Record High, Sparking Dollar Sell-off

The number of homes repossessed in the United States rose to a record level in the final three months of 2007 as the slump in the American housing market and the impact of the credit crunch affected the country's poorest borrowers, figures showed yesterday.

News of the jump in foreclosures prompted a fresh sell-off in the dollar - which was trading at its lowest-ever level against the euro - and led to an early 100 point sell-off in the Dow Jones industrial average on Wall Street.

Fears of a deepening crisis in the US real estate sector, however, dragged oil prices back from the high of almost $106 a barrel reached earlier today. After a $5 jump on Wednesday, crude in New York was changing hands at just over $104 a barrel.

The Mortgage Bankers Association said there had been a rise in failing home loans across the board but said the problem of foreclosure and mortgage arrears had been concentrated among sub-prime borrowers - those with the poorest track records for keeping up repayments on their loans.

At the end of a year that saw property prices fall by 10% in some regions, 0.83% of US mortgage loans were entering the foreclosure process in the last three months of 2007 compared with 0.54% in the same period a year earlier.

The total number of mortgages in foreclosure stood at 2.04% of outstanding loans, up from 1.69% in the previous quarter and 1.19% in the fourth quarter of 2006. Repossession rates for sub-prime borrowers were running at 13.4% in the final three months of 2007.

The mortgage delinquency rate of 5.82% was the highest since 1985 and up from 4.95% in the fourth quarter of 2006. By the end of 2008, one in five sub-prime borrowers was in arrears.

Joseph Brusuelas, chief economist at idea global in New York, said: "Any talk of stabilization in the market is extremely premature. Prospective homeowners are in a behavioral free fall. They are not willing to make a sizable capital investment with the expectation that home prices will continue to fall at least through 2008 and, in some cases, well into the next decade."

Strong expectations that the US Federal Reserve will respond to the crisis in the housing market by cutting interest rates by a further 0.5 percentage points next week pushed the dollar lower on the foreign exchanges.

The dollar slid to a historic low of $1.5372 against the euro; dropped below the $2 level against sterling and lost ground against both the Swiss franc and the Japanese yen. The New York Board of Trade's dollar index, which tracks its performance against a basket of six currencies, tumbled to a lifetime low of 73.018.

At one stage yesterday, the weakness of the dollar looked likely to push the price of gold through the $1,000 an ounce barrier for the first time, but gold later fell by 2% on profit-taking to trade at $968 an ounce.

Jean-Claude Trichet, president of the European Central Bank, added to pressure on the dollar when he put paid to any hopes of an early cut in interest rates for the euro zone. Despite the deteriorating outlook for growth, Trichet said the ECB was more worried about inflation.