Global fears as US housing market faces new collapse

Worries are mounting about the state of the US economy and the impact its deterioration could have globally. Unemployment in America has risen to 10% and one-quarter of mortgage borrowers are in negative equity.

The latest statistics show that mortgage lending in America fell to a new low in July, with second-hand home sales plunging 27% and new home sales falling 12%, renewing speculation of a double dip.

According to government-owned mortgage provider Freddie Mac, the number of new home sales were down to their lowest since its survey began in 1971.

Neil Dwane, chief investment officer for Europe at investment group RCM, said: "The US economy is slowing much faster than policy-makers and investors had expected.

"We are reading about policemen losing their jobs, schools and hospitals being closed and in California, they are now paying you with IOUs that are only worth 88% of the dollar bill written on the cheque when you take them to the bank.

"We are seeing the US housing market relapsing badly with the latest data suggesting that one in four mortgages in the US exceeds the value of the property on which it was written."