The fall in US house prices is having a knock on effect on the US economy. With house prices falling it is causing a fall in consumer confidence and consumer spending.
“Nouriel Roubini, economics professor at New York University, says the housing bust is slowly pulling America into recession. He cites a 14.4pc drop in housing starts last month; an expected loss of 600,000 real estate jobs in 2007; a sharp fall in home equity withdrawals – down from 6pc of GDP at the top of the boom; and a squeeze as $1,000bn of mortgages are adjusted upwards this year to higher interest rates.”
If the US economy was to go into recession it would make the reverse credit situation even worse, causing negative equity and an increase in the number of home repossessions.
THe US real estate market has already experienced several redunancies. 22 Mortgage dealers have gone bankrupt in the last 2 months. This is increasing the cost of insuring against loan default.
Many feel that what is happening in the US housing market could soon spread to other housing markets such as the UK