"...based on the IMF's review of housing cycles going back several decades, the average country sees home prices escalate by 45 percent during booms (which last, on average, about 6 years), and then sees prices decline about 25 percent during busts..."
So....since our house price rise was *more* than 45%.....
Our bust will be more than -25%.
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A World of Hurt
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However, some experts believe there are differences that may keep overseas markets from falling quite as far as Americans' home values. While countries like the U.K. did experience some subprime lending, the practice of giving mortgages to less credit-worthy buyers never reached the proportions overseas as it did in the United States. That means other countries likely won't experience the level of foreclosures that America has seen. And while European countries did experience a building boom as home prices shot up during the early 2000s, no country went as wild over new houses and condos as America did. As a result, overseas markets aren't suffering the vast glut of never-lived-in houses sitting vacant on the market, which is making it hard to sell existing homes in many U.S. markets.
That doesn't mean that overseas real-estate markets are insulated from a painful price decline, however. Howard Archer, chief U.K and Eurozone economist at Global Insight, predicts that home prices in the U.K. will fall 16 percent in 2008 and another 15 percent next year. Home prices there won't bottom out until late 2010, Archer says, and when they do, they'll be 33 percent below the peak they reached in mid-2007.
Indeed, for all the talk about the unprecedented nature of the U.S. housing meltdown, when experts like Loungani look at the numbers in the context of global housing cycles, our recent experience seems slightly less remarkable. Loungani says that based on the IMF's review of housing cycles going back several decades, the average country sees home prices escalate by 45 percent during booms (which last, on average, about 6 years), and then sees prices decline about 25 percent during busts, which last an average of four years. For people anxiously awaiting the bottom of this painful U.S. housing bust, those numbers may be encouraging. Says Loungani: "The U.S. is approaching the fourth year and has had cumulative declines getting close to 25 percent, [and] we're trying to make the point that based on historical experience, the U.S. should be bottoming out mid-next year."
But the IMF research also contains some unpleasant findings about the way housing busts usually ripple across economies. IMF economists looked at how recessions played out across a host of countries, and one of the things they explored was the way in which a housing bust tended to exacerbate an economic downturn, particularly when it comes to unemployment. Simply put, during recessions that coincide with housing downturn, many more people tend to find themselves without a job. With U.S. unemployment already at 6.1 percent and the economy undergoing an evident slowdown due to the credit crisis and plummeting consumer confidence, our economic pain may continue even when America's housing woes reach their nadir.
Daniel Mcginn Is A National Correspondent At Newsweek And The Author Of "House Lust: Americas Obsession With Our Homes"
© 2008
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