U.S. Housing Disaster–Unfortunately–Likes to Travel

An article in today’s New York Times discussed the impact that the U.S. housing crisis has had on the world–and it’s not a good one.

In countries like the U.K. and Spain, housing is starting to suffer.

  • Much has been written in recent months about British housing woes, and Ireland is experiencing a correction, as well.

Almost a year ago to the day, Bloomberg reported that residential real estate in Northern Ireland–after years or unrest–was finally catching up to the rest of the kingdom, with home prices increasing at one of the fastest rates in Europe.

Not so anymore. Britain’s biggest mortgage lender, Halifax, said last week that home prices had dropped by the largest amount since the early 1990s, when Britain experience a property crash, according to the Times Online.

However, the correction isn’t limited to Europe.

  • China and India are also seeing lower housing prices after a period of steady increases: The Chinese market was growing so fast that the government had to institute lending curbs to cool it off. (That successfully brought home price increases down to 10.9 percent in February from 11.3 percent in January.)

But–as in the U.S.–those astronomical gains were to be followed by big drops. And now, fear is rising that several countries could be in for the same housing market decline as the U.S.–if not worse.

A string of housing market collapses could cause a number of problems. For one, we’ve seen how devastating a true housing market implosion can be on a country’s individual economic growth. It reduces personal wealth, then hurts consumer spending, which in turn slows the economy and could (and may already have) cause a recession.

But a housing market ripple effect could hurt more than just individual economies–it also could damage general global economic growth.

Part of the reason areas like the U.K. and China are experiencing a correction is because prices got just too darn high; but they’ve also felt the effect of the U.S. housing decline via our financial markets. Other countries had invested in items tied to or backed by our mortgages; and we do the same.

And what about our building material companies? Strong growth overseas has helped them offset the impact of the U.S. housing slump–but that’s another industry looking at some serious trouble if the U.K., Spain or other economies fall into housing disarray.

More housing market issues are likely to have a huge effect on all kinds of sectors–including private companies.

Just ask Ikea. The U.K. is its fourth biggest market. Its 17 U.K.
stores accounted for almost 10 percent of the largest home-furnishings
retailer’s euros 19.8 billion of sales in 2007; on Wednesday Chief
Executive Officer Anders Dahlvig said that the U.S. housing crisis had reduced Ikea’s global growth "quite a lot."

Could it do the same for other economies around the world? We certainly hope not…