Housing market's upswing at risk of collapsing

Home sales are sliding, prices are stalling, and foreclosures are rising. And mortgage rates are likely to go up after next week when the Federal Reserve ends a program that has driven them down.

The trend could threaten the broader economy, economists warn. People whose home equity is stagnant or shrinking are less likely to spend freely.

In a move that will help at least some homeowners avoid foreclosure, Bank of America unveiled a $3 billion plan Wednesday to help some of its most troubled borrowers. It said it will forgive up to 30  percent of their total mortgage balance. About 45,000 borrowers are expected to qualify, the bank said.

The plan is part of an agreement the bank reached in 2008 with state attorneys general involving high-risk loans made by Countrywide Financial Corp. before Bank of America acquired it.

It's the first time a lender has announced a broad plan to reduce the principal when home values drop well below the amount owed. Bank of America collects more Americans' home loan payments than any other company.

As the housing market sputters, manufacturing remains a source of strength for the economic recovery. Orders for big-ticket manufactured goods rose for a third straight month in February, bolstered by demand for commercial aircraft and machinery. The Commerce Department said Wednesday that orders for durable goods rose 0.5 percent last month.

Only a few months ago, the housing market had been showing signs of strength as it recovered from the most painful downturn in decades. Much of the improvement, though, came from government programs that held down mortgage rates and provided breaks for buyers.

The latest sour news came Wednesday, when the Commerce Department said sales of new homes fell last month to their lowest point on record. It was the fourth straight drop.

While bad weather could well have suppressed the February result, it was dismal no matter how one tries to slice and dice it, Joshua Shapiro, an economist at MFR, wrote.

To cope with falling demand, the industry has slashed the pace of construction. But thousands of foreclosed homes have been dumped on the market at bargain prices. That glut makes it hard for builders to compete.

On Wall Street, major stock indexes fell from their 2010 highs as the weakness in the housing market and rising European debt loads revived investors' pessimistic view of the economy.