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 sea****ts 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.
To some extent, the world's problems are a result of American
contagion. As home financing and credit tighten in response to the
crisis that began in the U.S. subprime market, analysts worry that
other countries could suffer the mortgage defaults and foreclosures
that have afflicted California, Florida and other states.
Citing the far-flung reverberations from the American housing bust and
credit squeeze, the International Monetary Fund cut its forecast
Wednesday for global economic growth this year and warned that the
malaise could extend into 2009.
"The problems in the U.S. are being transmitted to Europe," said
Michael Ball, professor of urban and property economics at the
University of Reading in England, who studies housing prices. "What's
happening now is an awful lot more grief than we expected."
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 fianc=E9, Paul Colgan, in May
2006, at the peak of the market. They paid EURO 365,000, or $575,000 - at
least $100,000 more than it would fetch today.
"I sometimes get ****vers 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 buying
investment properties in Warsaw, Estonia and other former real estate
Klondikes.
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
re****ting 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.
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