Despite desperate attempts by the Federal Reserve to slow a downturn, the US housing market continues to worsen with house prices and sales persistently in decline. The half-point cut in interest rates from 5.25% to 4.75% in mid-September had little effect on mortgage rates and demand, with sales of housing down 8.3% over the previous month, and house prices down 7.5%.

The problematic situation continues after sub-prime mortgage lenders, companies that lend to borrowers with poor credit ratings at higher rates, implemented tougher restrictions on lending alongside increased mortgage rates. The dilemma is further increased with banks unwilling to loan to each other for longer periods than a week during such turbulent times. Some of America's largest financial banks are reporting substantial declines in profit. Citigroup recently announced that profit for the quarter had fallen 60%, while Morgan Stanley announced a decision to cut a total of 600 jobs within its residential mortgage business, and recorded a 7% fall in profits from the same period in 2006. Furthermore, Swiss bank UBS is expected to announce losses for the first time in a decade as a result of the US sub-prime crisis. The continued slump in sales has also hit housing developers hard, with reserves of unsold homes at a record 5.1 million in August.

Meanwhile, Alan Greenspan, former chairman of the Federal Reserve, has warned of the risks to the UK housing market, claiming that the market is heading for a correction, and that the UK is more exposed due to a greater popularity of variable rate mortgages, where interest rates reflect current market conditions.