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U.S. Mortgage Crisis Goes Global
by
findingDulcinea Staff
Markets in real estate–heavy countries such as Ireland and Spain are reeling from a slow-down after nearly a decade of steady growth.
30-Second Summary
Overvalued properties, delinquent buyers and a glut of new homes have placed stress on economies that have become increasingly dependent on real estate and construction.
In a recent study, the International Monetary Fund has placed much of the blame for the wider crisis on the slowdown of the American economy, estimating it will grow by only 0.5 percent this year and 0.6 in the next.
Blame for the global slowdown has also been placed on inflated property prices, led by the Netherlands, Ireland and England, whose prices average 30 percent above explainable levels.
The IMF also reported that the broader impact of the American housing crisis could cost the world economy about $945 billion.
“The crisis is spreading beyond the US subprime market — namely to the prime residential and commercial real estate markets, consumer credit, and the low- to high grade corporate credit markets,” stated the IMF in its report.
As the housing crisis expands, some countries have witnessed the effects in other sectors, including construction and home furnishings, with global brands, such as Ikea, seeing decreasing consumer sales.
This crisis has also meant higher unemployment in some countries, stemming from a decrease in construction jobs. Unemployment in Spain is expected to reach 11 percent next year.
In a recent study, the International Monetary Fund has placed much of the blame for the wider crisis on the slowdown of the American economy, estimating it will grow by only 0.5 percent this year and 0.6 in the next.
Blame for the global slowdown has also been placed on inflated property prices, led by the Netherlands, Ireland and England, whose prices average 30 percent above explainable levels.
The IMF also reported that the broader impact of the American housing crisis could cost the world economy about $945 billion.
“The crisis is spreading beyond the US subprime market — namely to the prime residential and commercial real estate markets, consumer credit, and the low- to high grade corporate credit markets,” stated the IMF in its report.
As the housing crisis expands, some countries have witnessed the effects in other sectors, including construction and home furnishings, with global brands, such as Ikea, seeing decreasing consumer sales.
This crisis has also meant higher unemployment in some countries, stemming from a decrease in construction jobs. Unemployment in Spain is expected to reach 11 percent next year.
Headline Links: A crisis spreads
The mortgage crisis that has so affected the U.S. housing market has found its way abroad, with economies from England to India feeling the pinch of decreasing prices and buyers unable to keep up with payments. Two of the hardest-hit markets are Ireland and Spain, which are both heavily dependent on real estate and construction as a part of their overall GDP.
Source: The New York Times
BBVA, one of Spain’s largest banks, lowered its GDP forecasts for the next year to 1.9 percent growth, from 2.6, citing a 7.5 percent drop in real estate investment in 2008 and 14.5 percent expected for 2009. The downturn also spurred the bank to revise its unemployment forecast for the country, rising it to 9 percent for 2008 and 11 percent in 2009.
Source: Forex Street
The British housing market is facing some of its lowest prices increases in years, raising fears of larger market problems for homeowners, especially those who have bought properties as personal investments. A recent study by the International Monetary Fund found that England had the third most overvalued housing market in the world, with prices 30 percent higher than could be reasonably explained. Ireland and the Netherlands were first and second on the list.
Source: The Economist
A different IMF study found that the international cost of the housing crisis in the United States could reach 945 billion dollars as it spreads beyond residential properties. “The crisis is spreading beyond the US subprime market—namely to the prime residential and commercial real estate markets, consumer credit, and the low-to-high grade corporate credit markets,” the IMF concluded.
Source: AFP
Background: Many sources of blame
The International Monetary Fund has placed the blame for a wider global housing slow-down on the soft U.S. economy. Expected to grow by just 0.5 percent in 2008, the lowest figure in 17 years, the American economy is already, by some accounts, in a recession. Similar numbers are expected for 2009.
Source: Associated Press
In the United Kingdom, the Tory Party has used the used the housing crisis as political ammunition to attack Prime Minister Gordon Brown for his handling of the steep rise in prices and the credit shortage in British banks.
Source: The Times Online
The Spanish housing market has been further affected by an increase in corruption, both by developers and city officials. A spike in homes built without proper permits or on protected land has forced the national government to designate many homes for destruction, resulting in mistrust in the market from foreign buyers.
Source: The Daily Mail
Reactions: Solutions emerge as crisis continues
British Chancellor Alistar Darling, responsible for all economic and financial matters in the United Kingdom, has suggested that the best way to deal with the current U.K. mortgage crisis would be to ask lenders to lower interest rates for those paralyzed by housing debt. Darling has called for action on the part of lenders in exchange for the billions of pounds that have been invested into the U.K. housing market.
Source: The Guardian
Former Federal Reserve Chairman Allen Greenspan has defended the role of the U.S. economy in the wider housing crisis, saying that, although the country’s single-digit interest rates may have played a role in supporting a false sense of security, they represented a median relative to other markets. He suggests that general global move toward single-digit interest rates is to blame for the increased number of questionable mortgages allowed and thus the wider crisis.
Source: The Financial Times
Opinion & Analysis: Related industries affected
Home furnishing giants like Ikea have seen their sales decline across Europe, especially in those markets said to be hardest hit by a global housing crisis, such as Ireland and Spain.
Source: Blogging Stocks
Reference: The makings of a crisis
David Leonhardt of the New York Times set out to discover exactly how the U.S. housing crisis began and how widespread it has become. He notes that, although it is less expansive than he first thought, it is far from over and has the potential to cause far more problems.
Source: The New York Times
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