The crisis in the financial markets could make it even tougher to get loans to buy cars or houses, and the Federal Reserve didn't make things any easier by declining to lower interest rates this week.
Experts say that any hope of relief from the ongoing credit crunch -- which had started to flicker as rates slipped and home buyers eased back into the market -- has been dashed by the week's events.
With the big financial houses in disarray, the market for home mortgages and other loans is shakier than ever.
A rate cut by the Fed might have eased the problem by making it easier for businesses and individuals to get access to cash, but the decision to leave rates unchanged means that the mortgage market will not gain the extra flexibility that many had hoped for.
The lending environment for home and car loans as well as credit card rates "definitely won't get better in the short term and may get a little worse," said Greg McBride, senior financial analyst for the personal finance website Bankrate.com.
It could prove difficult to extricate the economy from what may be a vicious circle: The housing crisis spurred the Wall Street crisis -- but neither may be able to recover without the other.
"It's one of those chicken-and-egg things," said UCLA economic forecaster Edward Leamer.
The continued turmoil also means that consumers will continue to have difficulty affording -- or financing -- other large purchases, such as automobiles.
Whereas interest rates on cars loans, credit cards and some home mortgages are actually down from a year ago, lending standards have grown so tight that only people with the highest credit scores can get the loans. In some cases, even they have been turned down.
The difficulty faced by even qualified buyers could make already dismal auto sales worse, said Bert Boeckmann, owner of Galpin Motors in North Hills.
"It doesn't matter what the rate is if the customer can't get the loan," he said.
Sales at his dealerships, which include Ford, Mazda, Honda and Jaguar franchises, were down about 10% in August from a year ago, Boeckmann said. Nationwide, automobile sales were down 15.5% in August from the previous year.
Government and industry leaders have blamed the Wall Street meltdown on the housing crash, and they say the housing market needs to stabilize to stop the bleeding in the financial markets and the overall economy.
"The housing correction is at the root of the challenges facing our markets and financial institutions," Treasury Secretary Henry M. Paulson Jr. said Monday.
Sliding house prices have led to wide-scale defaults on home loans, which have hammered financial firms heavily invested in mortgage-backed securities.
This has led to the housing market's current paradox: Spooked investors have fled the mortgage market as house prices plummet, but house prices won't stabilize without more mortgage lending.
Fed rate cuts won't make a difference as long as investors lack confidence in the mortgage markets, said Sung Won Sohn, an economist at Cal State Channel Islands in Camarillo.
The recent rescue plan for Fannie Mae and Freddie Mac has restored some faith, making interest rates relatively low. But with the continuing instability in the financial markets, those low rates benefit only a relatively small pool of borrowers.
Rates for 30-year fixed mortgages that are eligible for government backing -- those below $730,000 -- fell below 6% this month. But rates for jumbo loans, which lenders view as riskier, still hover around 7%.
Five-year new-car loans now average 7.1%, compared with 7.72% a year ago. And credit card rates are down to 11.3% from 14% a year ago, according to Bankrate.com, although those rates are available only to people with top credit ratings.
Moreover, other factors are at play that may push some rates back up. The London Interbank Offered Rate, or Libor, rose 19 basis points Wednesday to 3.06%, its largest increase since 1999. If the increase holds, it could raise interest charges on some adjustable-rate mortgages that are based on Libor averages.
Consumers may have little choice in how to weather the storm.
Scott Leonard, a Redondo Beach financial planner, says that those who are in trouble now are not likely to qualify for loans to refinance their homes or consolidate their bills -- and won't be able to until credit loosens up, rates drop further and prices begin to rise.
"If you're in a bad situation, I'd be surprised if you would be able to refinance [a home mortgage] now anyway," Leonard said.
And many homeowners are in bad situations. The real estate website Zillow.com estimates 71% of Los Angeles-area homes purchased in 2006 and 56% of homes bought in 2007 are now worth less than their mortgage amounts.