U.S. housing collapse spreads overseas

U.S. housing collapse spreads overseas
By Mark Landler Published: April 14, 2008

DUBLIN: The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices down from the Irish countryside and the Spanish coast to Baltic seaports and even in parts of India.

This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes, but also jobs.

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the past decade are falling back to earth. Experts predict that some countries, like Ireland, will face an even more wrenching adjustment than the United States, with the possibility that the downturn could turn into wholesale collapse.



For countries like Ireland, where prices were even more inflated than in the United States, it has been a painful education, as homeowners learn the American vocabulary of misery.

"We know we're already in negative equity," said Emma Linnane, a 31-year-old university administrator. She bought a cozy, one-bedroom apartment in the Dublin suburbs with her fiancé, Paul Colgan, in May 2006, at the peak of the market. They paid €365,000, or $575,000 - at least $100,000 more than it would fetch today.

"I sometimes get shivers thinking about it," Linnane said, "but I'll let the reality hit me when I go to sell it."

That reality is spreading. Once-sizzling housing markets in Eastern Europe are cooling rapidly, as nervous West Europeans stop

Even further east, in India and southern China, prices are no longer climbing. With stock markets down sharply after reaching heady levels, people do not have as much cash to plow into property. Sales of apartments in Hong Kong, a recently hyperactive market, have slowed, with prices for mass-market flats starting to drop.

In New Delhi and other parts of northern India, prices have fallen 20 percent over the past year. Sanjay Dutt, an executive director in the Mumbai office of Cushman & Wakefield, the real estate firm, described it as an erosion of confidence.

Much of the retrenchment can be attributed to the basic laws of gravity: What goes up must come down. With low interest rates helping to inflate housing bubbles in many countries, economists said, the confluence of falling prices was predictable, if unsettling.

How this will affect the broader fortunes of countries differs radically. Ireland and Spain are shuddering, while growth in India this year is expected to slow only a percentage point or so from its recent pace of 9 percent. In China, the effect may be even more limited.

"If the Fed moves rates, and the People's Bank of China follows, it doesn't mean much to a peasant in China," said Thomas Mayer, the chief European economist at Deutsche Bank in London. "But it means a lot for the newly rich entrepreneur in Shanghai, who can load up on credit and buy a fancy apartment."

This is not the first housing downturn to cross borders, Mayer said, but its reverberations have been amplified by financial markets. When faulty U.S. mortgages ended up on the books of banks around the world, the problems of the United States aggravated global problems.

Consider Britain, which had one of the most robust European housing markets, with less of an oversupply than Ireland or Spain. Then last summer came the subprime crisis across the Atlantic.

By September, there was a run on a British lender, Northern Rock. A month later, mortgage approvals dropped 31 percent, compared with the number a year earlier, and by November, real estate brokers began reporting the first declines in housing prices. In March, average prices fell 2.5 percent, the largest monthly decline since 1992, according to HBOS, a mortgage lender.

buying investment properties in Warsaw, Estonia and other former real estate Klondikes.

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Is this our goverments fault also?? Our news media not telling the truth? How can this be.? Who, I say who are they exporting jobs to? Who loaned them money at high risk? Sad day, it just has to be someone elses fault, no one in their right mind would say it is THEIR OWN fault. Who is to blame - who ?? Just more blah, blah, cry, cry, suck it up folks, its dooms day only if you want it to be.

Edited by mss, 14 April 2008 - 11:41 AM.

"its dooms day only if you want it to be" Exactly!!!! Depression starts in our heads, not in the economy. Lately I noticed that people actually want the USA to fail. When so many predict economic collapse, they start cheering for it just to look smart and be right. This is the first time I have ever seen it in the United States. Failure is becoming our goal. Self fullfilling prophecy. Be careful what you wish for. And if someone is saying "I am just trying to profit on the failure", he is in for a huge surprize. Denleo

lol, how quickly we go from the bull market vs bear market argument to the "Doomsday or not" argument. I'm just tradin' this trash from support to resistance to support... I'll let the "smart" guys figure out if it's bear or bull, boom or bust.

"its dooms day only if you want it to be"

Exactly!!!!

And if someone is saying "I am just trying to profit on the failure", he is in for a huge surprize.

Denleo

I take it you never short.

right. the reason we try not to lose money (and even make money) in a bear market is so that we will have MORE MONEY to invest when things start looking better. but: the whole idea that bears want america to fail is something we all knew would come out sooner or later. and i suspect that kind of talk will get REALLY UGLY before it is over. so, bears, be prepared.

right.

the reason we try not to lose money (and even make money) in a bear market is so that we will have MORE MONEY to invest when things start looking better.

but: the whole idea that bears want america to fail is something we all knew would come out sooner or later. and i suspect that kind of talk will get REALLY UGLY before it is over. so, bears, be prepared.

I don't "try not to lose money." I am only in it to make money. However it goes, whereever it takes me.

Now, there are some who think bailing out private banks with taxpayer money because said private banks lost some bets they leveraged at 30 to 1 and could not pay off is the American Way and all is well with an economy when that has to occur to protect "The System."

I don't.

I could continue as to my regard for the "If We Just Have Faith" solution proffered over the last eight years or so...but, that is not appropriate to this site.

Didn't Oprah push some sort of book like that? The Promises Book or something?

Edited by milbank, 14 April 2008 - 02:06 PM.

This is why I am short gold. I really don't see how we can have stagflation when assets start to drop all around the world. It is a global recession as in receding prices. The dollar won't strengthen it will be the other currencies dropping that make it look a little stronger.

As it has always been and always will be.. Prices will swing one direction and swing the opposite direction until it swings again. Value investors will come in once prices reflect value. Homes are not even close. Stocks are probably closer.