Let us return to the root of the financial crisis, the US housing market. It is still rotting. Prices in the 20 cities covered by the Case-Schiller index have been falling for almost two years. Data from RealtyTrac released on Thursday shows that in the month of October alone, a quarter of a million US households received foreclosure filings. In Nevada, a state suffering from some of the worst fall-out from the housing boom, there has been one filing for every 11 homes so far this year. Estimates vary, but roughly a quarter of mortgaged homes in the US are worth less than the debt secured against them.

It is difficult to see any moderation of the trends in the coming months. Thanks to the excesses in subprime lending, the relationship between unemployment and repossession numbers broke down – mortgage delinquencies began rising while the economy was still in decent shape. However, the link is not broken. The October jump in foreclosures – up by a quarter year-on-year – reflects the latest rise in the unemployment rate to 6.5 per cent, from 5 per cent as recently as April. The economic consensus is for this to hit 7.8 per cent by the end of 2009.

What should policymakers do? The only approach that has so far appeared to slow the rise in subprime and Alt-A mortgage delinquency numbers has been the $100bn worth of Federal tax rebate cheques distributed over the summer. Giving borrowers greater notice before foreclosure, as California recently forced banks to do, merely delays the inevitable. Meanwhile, research by the Federal Reserve of St Louis suggests that modification of mortgages, while politically popular, provides only a short-term fix. Changing the rules of the game discourages future lending by the banks. Until an end to the recession is in sight, there is very little that can be done.

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