The vicious cycle in the U.S. housing market may be gaining momentum again. That's a troubling sign for the economy.
With the unemployment rate holding stubbornly above 9 percent, jobless benefits running out and home prices still in the doldrums, previously reliable U.S. homeowners are falling behind on their mortgage payments at an increasing rate. As of September, 1.6 percent of borrowers who were paid up six months ago were already at least 90 days delinquent, according to data provider LPS Applied Analytics. That's up from 1.3 percent in June. Delinquencies tend to rise in the latter part of the year, but the increase looks particularly sharp.
The delinquencies will ultimately add to banks' inventory of foreclosed homes, which will weigh on house prices if and when they are brought to market. Falling house prices would boost the number of Americans who owe more on their mortgages than their homes are worth, further increasing the chances that they'll fall behind on their payments.
The housing market has been the biggest missing piece in the U.S. economic recovery. In a recent research report, economists at Goldman Sachs noted that housing -- through direct construction spending, wealth effects and consumption of complementary goods such as furniture -- can add more than 1.25 percentage points to annualized, inflation-adjusted growth during boom times. Over the past year, the sector has subtracted 0.15 percentage point.
As Bloomberg View has noted, President Barack Obama's latest plan to reduce mortgage payments for struggling homeowners won't do much to solve the problem. Only more radical action, such as principal reductions, can clear the market and stem the flow of delinquencies.
(Mark Whitehouse is a member of the Bloomberg View editorial board)