La bolla immobiliare americana contagia l’Europa

[Abbott (POL)]

Dall’Herald Tribune: “U.S. housing collapse spreads overseas”

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http://maxneri.wordpress.com/2008/04...tagia-leuropa/

[Abbott (POL)]

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 seaports 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 fiancé, Paul Colgan, in May 2006, at the peak of the market. They paid €365,000, or $575,000 - at least $100,000 more than it would fetch today.

"I sometimes get shivers 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 reporting 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.

"The boom in house prices was actually much bigger here than in the U.S.," said Kelvin Davidson, an economist at Capital Economics in London. "If anything, people should be more worried than in the U.S."

Britain has the most developed home-financing industry after the United States. The amount of outstanding mortgage debt, as a share of total economic output, is higher there than in the United States, according to an IMF study.

Britain "followed the U.S. into never-never land, pushing mortgages out the door, believing that prices would go up forever," said Allan Saunderson, the managing editor of Property Finance Europe.

Still, the problems in Britain pale next to those of Spain and Ireland. Residential investment accounts for 12 percent of the Irish economy and 9 percent of the Spanish economy, compared with 5 percent in Britain and 4 percent in the United States, according to the IMF.

The glut of housing has brought new construction to a standstill, driving up unemployment and dimming the prospects for two of the stellar European performers over the last decade.

"We're waking up from the property dream, and finding ourselves in a situation where prices are falling in Spain for the first time," said Fernando Encinar, a founder of idealista.com, a real estate Web site.

Spain built more than four million homes in the past decade, more than Germany, Britain and France combined. Average house prices tripled in parts of the country, as the Spanish economy attracted immigrants and north Europeans snapped up holiday homes in the Costa del Sol region of southern Spain.

Now, though, thousands of those houses stand empty. The IMF estimates that property is overvalued by more than 15 percent. With mortgages drying up and prices dropping, speculators who once viewed Spanish property as a no-lose proposition are confronting a hard reality.

In 2005, Julian Felipe Fernández bought three small apartments, as an investment, in a huge development being built outside Madrid. He paid €100,000, or $158,000, as a deposit for the units, and now he is eager to sell them to avoid having to take on a costly mortgage But with the market stalled, he is asking only what he paid for them.

"Three years ago, it looked like I would be able to flip them for a nice profit before they were finished," he said. "I just want to get them off my hands, to get rid of this headache."

If he unloads them, he will be lucky. Enric Bueno, head of marketing for Ibusa, a real estate company in Barcelona, said his company was closing six or seven sales a month, compared with 40 a year ago. Homeowners are dropping their prices, he said, but buyers cannot get mortgages.

"Things are really bad," Bueno said. "If this goes on for five years, we won't make it. If it lasts for two, we will."

Economists have been busy cutting their economic growth forecasts for Spain, with a few saying that it may stagnate this summer. BBVA, a Spanish bank, forecasts that unemployment will rise to an average of 11 percent this year, from 8.6 percent in 2007, owing mainly to job losses in construction.

Such cutbacks are well under way in Ireland, where taxi drivers complain that their ranks are being swollen by laid-off construction workers. The housing collapse has brought an abrupt end to more than a decade of pell-mell growth that earned Ireland the nickname the Celtic tiger.

Today, the mood in this country feels like that of a wake. Average house prices fell 7 percent last year, the most in Europe, according to the Royal Institute of Chartered Surveyors, a British real estate group. They are likely to fall by a similar amount this year.

After a 16-year boom that was interrupted only briefly after the Sept. 11, 2001, terrorist attacks in the United States, Ireland has the most overvalued housing market in the developed world, according to the IMF. In its recent economic outlook, the fund calculated that prices are 30 percent higher than they should be, given Ireland's economic fundamentals.

For many Irish, accepting that reality is like passing through the seven stages of grief. Some homeowners are still in denial, said brokers, asking $5 million for houses worth no more than $4 million. But developers have begun cutting prices for smaller apartments like the one owned by Linnane.

An Irish Times article Thursday about a $13 million house, with a garden and tennis court, faced an ad for a complex where the apartments were being peddled at a 15 percent discount.

"Last year was our 'wake up in the middle of the night with sweat pouring down your face' period," said David Bewley, a director at the Lisney real estate agency. "Now we've grown up."


Reporting was contributed by Victoria Burnett in Madrid, Julia Werdigier in London, Heather Timmons in New Delhi and Eamon Quinn in Dublin

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