Tuesday, February 27, 2007

Economics Effects of Falling US House Prices

After several years of rapid growth in US House Prices. The US housing market has taken a sharp reverse in fortunes. The number of new houses being built has fallen considerably and in many states of the US house prices are now falling. There are concerns that this fall in house prices will leave the US consumers with negative equity and therefore could cause a fall in Consumer spending. In recent years it has been consumer spending that has been the main determinant of US economic growth. It has also played a key role in global economic growth. However although falling house prices will cause a significant reduction in US consumer spending the effects on the global economy are less than they may have been a decade or so ago. Emerging markets like India and China are seeing a developing middle class with an apetite for luxury goods. Thus if the US was to go into recession it need not cause the world to follow. It is also worth remembering the Japanese economy is starting to recover, the main driving force there is, at the moment, consumer spending.

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