Henry Paulson, the US Treasury Secretary, led renewed warnings from the world’s leading economic policy-makers yesterday that threats to the US and world outlook from America’s housing slump and the global credit squeeze would drag on well into next year.

As he and fellow finance ministers from the Group of Seven advanced economies prepare for talks on Friday on the impact of the American housing and credit market upheavals, Mr Paulson delivered a sobering assessment of prospects for the US and global economy.

“Let me be clear: despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy,” Mr Paulson said in a speech at Georgetown University in Washington. “The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth.”

In a stark analysis that echoed comments made on Monday by Ben Bernanke, the Chairman of the US Federal Reserve, Mr Paulson noted that stresses in key parts of the credit markets, notably those for commercial paper and leveraged loans, were proving to be persistent.

Mr Bernanke also said that the housing market slump in the United States would remain “a significant drag” on American economic growth for months and that although credit market conditions had eased, significant risks remained. “Conditions in financial markets have shown some improvement since the worst of the storm in mid-August, but a full recovery of market functioning is likely to take time, and we may well see some setbacks,” he said in remarks that unsettled investors and prompted shares to slide on Wall Street yesterday.

Mr Paulson said that the US Government should take steps to limit the impact of the housing downturn with measures to limit foreclosures on the homes of struggling Americans. He said that Freddie Mac and Fannie Mae, the government-backed mortgage enterprises, could increase flows of funds to refinance loans to sub-prime borrowers, but he emphasised that this must not mean that lax lenders could escape the consequences of their actions. He said: “I have no interest in bailing out lenders or property speculators.”

Mr Paulson made his comments as D. R. Horton announced a 39 per cent decline in orders of new homes to 6,374 in the three months to October, compared with the year before. The value of orders dropped by 48 per cent to $1.3 billion (£640 million) over the same period.

As G7 finance ministers prepare to debate measures to prevent a repetition of the credit market turmoil, Mr Paulson agreed that the role of ratings agencies and improved regulations in the US to combat predatory lending should be examined.

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