US housing crisis gets worse

US housing crisis gets worse

The appalling state of the United States housing market is the big reason why the US is not going to recover any time soon. Students of economic history know that the construction sector – home and office building, road works etc – is the industry that kicks in to take economies out of recession. That's always been the case, with every recession.

But in the US, the housing market is blocking any chance of recovery. Bloomberg reports that US home values are going to drop by a whopping $1.7 trillion with rising foreclosures and the expiration of homebuyer tax credits. That means one thing: there will be lots of US home owners who will be under water, owing more to the bank than what the property is actually worth.

Add to that the warning from economist Nouriel Roubini that 11 million American borrowers are in danger of losing their homes and the banks face of a loss of around $1 trillion. ""That's a scary number because the previous estimates I saw were in the three to four million range for the next four years" Mr. Roubini said. "Some say these numbers are too pessimistic, but I've spoken to experts in the mortgage industry who say these numbers are quite realistic."

So when will the US recover? You can forget about next year, that's just going to be a mirror image of 2010. With unemployment in the US now at 9.8%, you would have to say that employment will not recover fast enough to increase prices. There won't be enough people getting jobs, and that's the only thing that would increase demand and push up prices. Neither will there be enough economic growth or investment. And that means we are going to see a lot of blood in the US housing market in 2011.

According to a survey from survey by real estate site Trulia.com and foreclosure site and marketing partner RealtyTrac, many Americans don't expect the housing market to recover for another five years. So it might start recovering in 2015. Maybe, all things being equal and provided there are no more economic disasters or wars.

That's a long time for the world's biggest economy to remain dysfunctional. This will be felt around the world. It will drag down the global economy.


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