Prices of homes drop worldwide

April 15, 2008
As effects of US housing slump spread...
Prices of homes drop worldwide
Global slowdown could become wholesale collapse, warn analysts

DUBLIN - THE collapse of the housing bubble in the US is mutating
into a global phenomenon, with real estate prices swooning from the
Irish countryside and the Spanish coast to Baltic seaports and even
parts of northern India.

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

In Ireland, Spain, Britain and elsewhere, housing markets that soared
over the past decade are falling back to earth.

Property analysts predict that some countries will face an even more
wrenching adjustment than the United States, including the
possibility that the downturn could become a wholesale collapse.

To some extent, the world's problems are a result of American
contagion.

As home financing and credit tightens in response to the crisis that
began in the sub-prime mortgage market, analysts worry that other
countries could suffer the mortgage defaults and foreclosures that
have afflicted California, Florida and other American states.

Citing the reverberations of the US housing bust and credit squeeze,
the International Monetary Fund last Wednesday cut its forecast for
global economic growth this year and warned that the malaise could
extend into next year.

'The problems in the US are being transmitted to Europe,' said Mr
Michael Ball, professor of urban and property economics at the
University of Reading in Britain who studies housing prices.

'What is happening now is an awful lot more grief than we expected,'
he said.

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

'We know we are already in negative equity,' said Ms Emma Linnane, a
31-year-old university administrator.

She bought a cosy one-bedroom apartment in the Dublin suburbs with
her fiance, Mr Paul Colgan, in May 2006 at the peak of the market.

They paid US$575,000 (S$780,000) - at least US$100,000 more than it
would fetch today. 'I sometimes get shivers thinking about it,' Ms
Linnane said. 'But I will let the reality hit me when I go to sell
it.'

That reality is spreading.

Once-sizzling housing markets in eastern Europe and the Baltic states
are cooling rapidly as nervous western Europeans stop buying
investment properties in Warsaw, Tallinn, Estonia and other real
estate Klondikes.

Further east, in India and southern China, prices are no longer
surging.

With stock markets down sharply after reaching heady levels, people
do not have as much cash to buy property.

With low interest rates helping to inflate housing bubbles in many
countries, economists said the confluence of falling prices was
predictable, if unsettling.

This is not the first housing downturn to cross borders, but its
reverberations have been amplified by the integration of financial
markets.

When faulty American mortgages end up on the books of European banks,
the problems of the US aggravate the world's problems.

Consider Britain, which had one of Europe's most robust housing
markets, with less of an oversupply than in Ireland or Spain. Then
last summer came the sub-prime crisis across the Atlantic.

Within two months, mortgage approvals dropped 31 per cent, compared
with the previous year. And in March, average housing prices had
fallen 2.5 per cent, the largest monthly decline since 1992.

'The boom in house prices was actually much bigger here than in the
US,' said Mr Kelvin Davidson, an economist at Capital Economics in
London.

'If anything, people should be more worried than in the US.'

EastLiving.com.sg

Contact Stuart Chng: (65) 9691 9907
Email: stuart.chng@eastliving.com.sg

EastLiving - Singapore Property and Real Estate DB