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Monday, April 14, 2008 11:59 PM


Global Recession On The Way


A global recession is headed our way, right on the heels of a worldwide housing bubble bust. Let's start with a quick look at housing in Australia, the UK, Spain, Ireland, and India.

The Brisbane Times is reporting Property market grinds to 'screaming halt'.

Brisbane's property market has come to a "screaming halt" and the outlook is grim, with the number of unsold homes rising and buyer confidence dropping, a leading analyst believes. Weekend auction clearance rates were at 35.7 per cent, with just 20 properties sold across Brisbane. It represented a drop from 37.9 per cent last weekend.

"It seems to have come to a screaming halt." said Australian Property Monitors general manager Michael McNamara.

Figures showed a 12 per cent increase in the number of unsold inventory in Brisbane during March, and the situation in other capital cities looks similar, he said.

"This time last year we recorded about 240,000 property listings across Australia - this year it's at 270,000... it's right across the board - every capital city is seeing much more unsold inventory."
UK Market Worst in 30 Years

The BBC is reporting UK Housing gloom 'worst in 30 years'.

Confidence in the UK housing market fell in March to its lowest point in 30 years, according to a closely watched survey of property surveyors.

The Royal Institution of Chartered Surveyors' (Rics) said that 78.5% more surveyors reported a fall than a rise in house prices in March.

This was the gloomiest reading since Rics began the survey in 1978.

The Halifax last week reported a 2.5% fall in prices in March, the biggest monthly decline since September 1992 and the slowest annual growth for 12 years.
Housing Woes Around The World

The housing bubble is busting around the globe.
In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse.

Citing the reverberations of the American housing bust and credit squeeze, the International Monetary Fund last Wednesday cut its forecast 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 Britain, who studies housing prices. “What’s happening now is an awful lot more grief than we expected.”

Once-sizzling housing markets in Eastern Europe and the Baltic states are cooling rapidly, as nervous Western Europeans stop buying investment properties in Warsaw, Tallinn, Estonia and other real estate Klondikes.

Further east, in India and southern China, prices are no longer surging. With stock markets down sharply after reaching heady levels, people do not have as much cash to buy property. Sales of apartments in Hong Kong, a normally hyperactive market, have slowed recently, 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 last year. Sanjay Dutt, an executive director in the Mumbai office of Cushman & Wakefield, the real estate firm, describes it as an erosion of confidence.

Consider Britain, which had one of Europe’s most robust housing markets, with less of an oversupply than in Ireland or Spain. Then last summer came the subprime crisis across the Atlantic.

Within two months, mortgage approvals dropped 31 percent, compared with the previous year. And by March, average housing prices had fallen 2.5 percent, the largest monthly decline since 1992. “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.”

“The U.K. 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, a newsletter for investors.

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 I.M.F.

In Spain, more than four million homes were built in the last decade, more than in Germany, Britain and France combined. Average house prices tripled in parts of the country, as Spain’s torrid economy attracted immigrants and Northern Europeans snapped up holiday homes along the Costa del Sol.

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

The IMF says U.S. recession will slow global growth.
The United States is headed for a recession, dragging world economic growth down along with it, the International Monetary Fund concluded in a sobering new forecast Wednesday that underscored the damage inflicted from the housing and credit debacles.

The fund slashed growth projections for the United States — the epicenter of the woes — and for the world economy. The fragile state of affairs greatly raises the odds that the global economy could fall into a slump, the IMF said.

Financial problems that erupted in August 2007 "spread quickly and unpredictably" and caused "extensive damage," the IMF said. It described the financial shock as the biggest "since the Great Depression."

"The U.S. economy will tip into a mild recession in 2008 as the result of mutually reinforcing cycles in the housing and financial markets," the IMF said.
My Comment: The IMF is calling the shock the biggest since the great depression, yet somehow the US is only going to experience a "mild recession". This is silliness. The recession is going to be deeper and longer than the IMF can possibly imagine. I am Calling for an "L" Shaped Recession.
The IMF now expects the world economy, which grew by a robust 4.9 percent last year, to slow sharply. The fund is projecting the global economy to grow by 3.7 percent this year and 3.8 percent next year.
My Comment: IMF is wildly optimistic about the US, and they are overly optimistic about the global economy as well.
"The IMF now sees a 25 percent chance that global growth will drop to 3 percent or less in 2008 and 2009 — equivalent to a global recession," the fund said. "The greatest risk comes from the still-unfolding events in financial markets, particularly the potential for deep losses" on complex investments linked to the U.S. subprime mortgage market, the IMF said.
It's Not Just Subprime

Anyone still harping about "subprime" clearly does not get it. The subprime crisis is way past peak. The Alt-A, pay option ARM, and walking away problems are just now brewing. There is also a commercial real estate implosion that has not yet hit full force.

By focusing on "subprime", the IMF is looking at the wrong thing. And they are not paying full enough attention to the global property bust.

The world is headed for recession. Housing paved the way for the US recession, and it is now paving the path to a global recession as well. Consumer retrenchment will make this a very nasty recession. Consumers are 70% of the economy and consumers are tapped out with no savings, no jobs, no job prospects, and no home equity left to tap. This is the end of the line.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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