Home > Blogs > Is the US housing market responsible for the global recession?

Pete Flint’s Blog

A blog from Trulia's CEO and co-founder
5,753 views
 

Is the US housing market responsible for the global recession?

Pete Flint, Home Buyer in San Francisco, CA
Written by Pete Flint, Home Buyer in San Francisco
November 17, 2008 2:41 PM Market Conditions
332 views
As the G-20 countries met last weekend to discuss the financial crisis, we all face lots of uncertainty about our future economic problems. It has me wondering about the root of all these issues we are facing and the global implications.

It is widely reported in the media that that US housing market was responsible for the global recession.

CNN say it here:  "A financial crisis that began when the U.S. housing bubble popped has engulfed countries large and small around the world."

There is widespread agreement that in many areas in the US there was a housing bubble driven by lax lending standards and these bad loans resulted in huge losses and bankruptcies in the banking sector. The losses in the finance sector then impacted the entire economy and consumer confidence resulting in today's poor economic environment (or recession). While the finance market is global, it really surprises me that a crisis that started in bad US loans has resulted in what appears to be a truly global recession.
Look at these numbers from the CNN report:


Country
GDP growth
Inflation
Unemployment
Stock market decline
Gallon of gas
Interest Rates
Brazil5.23%5.74%7.70%-44.16%$5.83 13.75%
China 9.74%6.43%4%* -64.92%$3.48 6.66%
Germany 1.85%2.94%7.43%-41.12%$8.58 3.25%
Iceland 0.30%12.12%2.20%-45.81%$7.5418.00%
India 7.93%7.93%7.80%-51.48%$4.95 7.50%
Japan 0.69%1.57%4.05%-42.45%$5.78 0.30%
Russia 7.00%14.03%5.90%-65.53%$3.93 11.00%
Saudi Arabia 5.85%11.45%13%† -50.50%$0.45 4.00%
South Africa 3.83%11.78%23.20%-30.64%$4.64 12.00%
United Kingdom 0.99%3.78%5.40%-34.20%$8.09 3.00%
United States 1.57%4.22%5.62%-33.10%$3.80 1.00%

I am no economist, but I find it hard to believe that some bad loans (lots of them, I know) would have such in impact on far away economies. I've heard the comment many times: "When America sneezes, the rest of the world catches a cold" it seems that America caught a cold and the rest of the world just caught influenza!

I stumbled across some interesting charts below showing the relative performance of some important real estate ratios. Compared to some counties the US housing market looks in relatively good shape!

 

From this, it appears that many International housing markets are also unbalanced. Given that housing markets and lending standards are typically very local and regional, I would think that the US is not totally to blame for the situation we are in.

So what do you think is going on? I would be interested in any International real estate perspectives and how they are affecting local economies.



Helpful
 (0)  
Email Alerts
Send to a Friend
RSS
report  

Comments

By Derek Joyner,  Mon Nov 17 2008, 15:22
I do not believe the houseing market is the cause for the economic down turn. I do believe it helped. I think we as Americans have been heading for this for a while. What goes up must go down. We are going to have to change the way we do things. Our cities and transportation are going to have to become more effecient. Housing is one of them as well. I am glad people want the big house with all the appeal. But I have sold couples with no children (they were not intending on having them either) a 4200 sq. ft., 5 bedroom with a bonus and unfinished basement a couple times. The house was for show and not for living. We as Americans are going to have to get away from living like this. We use more resources per person than almost any other country. I think it is great the country is getting economical in this pinch. It is effecting my wallet, but thats ok because we are getting better as a country. We have a long ways to go but we are closer than we were yesterday.
By Tyler Wood,  Mon Nov 17 2008, 15:29
Well said Derek.
By Matt Heaton,  Mon Nov 17 2008, 15:32
Exactly, their was similar housing bubbles (actually even bigger ones) in many countries world wide. Even characterizing the cause as a housing bubble is incorrect, it was a credit bubble that caused price bubbles across many asset classes. It drove the leveraged buy out mania of the last several years, bubbles in commercial development, stocks, bonds, pretty much everything across the board. In reality much of the "economic growth" of the last 5 years was the result of unsustainable cheap credit.
By Voices Member,  Mon Nov 17 2008, 15:47
The cause of the world wide crisis has a lot to do with the Barney Frank and the Clintons forcing banks into 100% financing. They were under the impression with socialist views that it was a RIGHT for every American to own a home and not a PRIVILEGE.
By Kevin Tomlinson,  Mon Nov 17 2008, 16:38
Houston we had a problem BEFORE the credit bubble burst. The credit bubble only created the perfect storm.
By Patrick Thompson,  Mon Nov 17 2008, 18:46
The US housing market crash bursting of the US/global economic bubble, while perhaps the most noticeable, was at most the vanguard not the cause.

The cause was the US government allowing shady credit practices which encouraged irresponsible citizens to acquire property with zero or minuscule money down and then borrow on the inflated equity in belief that it was the closest thing to a money tree ever devised.

Yes, when the housing market crashed, it caused a glut in the market of over-priced property which is bad enough but the real problem was that all of these same irresponsible people then easily able to take out home equity loans with no real way of paying them back since their whole means of repayment was tied to the now unsellable home they ended up abandoning when they couldn't pay the balloon or decided to vacate since it was cheaper to dump the property than paying to hold onto a losing proposition.

The root cause is the government agencies that American tax payers spend billions of dollars on each year to provide the type of safeguards and oversight needed to insure against this very thing happening.

A Ponzi scheme by any other name would smell as rancid.

Post a comment
 
Quick Links