The mantra that all real estate is local looks more suspect than ever, now that a national home-price bubble has burst. In today's interconnected marketplace, real-estate trends might follow a global pattern, with overseas housing markets following the lead set by the U.S.
In Europe, slack lending policies and low interest rates helped drive up property values just as they had in the U.S. In 2006, home prices rose at a double-digit pace in Ireland, Spain, France and Norway, according to Moody's Economy.com. They shot up in the United Kingdom, too, after briefly flattening out in 2005.
The air now looks like it is leaking out of Europe's housing balloon. Prices in Ireland fell 6% in the fourth quarter of 2007, after gaining 13% a year ago. In the U.K., prices gained 4.8%, compared with a gain of 10.5% a year earlier. Spain's 4.8% gain compares with an increase of 9.1% the previous year.
The International Monetary Fund said in a recent report that a slowdown in credit growth in Europe is emerging as "several countries face housing markets considered overvalued." It expects gross domestic product in the euro zone to grow by 1.6% in 2007, down from 2.6% in 2007.
Consumers are feeling it. In the fourth quarter, real European consumer spending fell at an annual rate of 0.3%, compared with a 1.9% annualized increase in the U.S., according to Citigroup.
It's not just Europe. In Thailand, prices for detached homes were down slightly in the third quarter from a year earlier, according to Thailand's central bank. Townhouse prices have flattened.
The upshot: The housing engine that helped drive the global economy is running out of gas, more evidence that a recovery could take longer than many expect.
By SCOTT PATTERSON
Wall Street Journal; March 25, 2008
