The Global Impact of America’s Housing Crisis
Although it is tempting to think of the downward spiral in US house prices as a purely domestic problem, nothing could be further from the truth. If the decline continues, the value of mortgage-backed securities held by financial institutions around the world will continue to decline, and the further erosion of household wealth will mean lower US import demand.
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CAMBRIDGE – The bursting of America’s housing bubble in the summer of 2006 triggered the global financial crisis and recession. The sharp fall in house prices that followed caused a dramatic downturn in household wealth, leading to lower consumer spending and an overall fall in GDP. By now, wealth in the form of owner-occupied housing is down about 30%, equivalent to a loss of more than $6 trillion of household wealth.