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Don’t count on the U.S. to escape from a housing downturn as easily as the United Kingdom did, Merrill Lynch economist David Rosenberg says today. Here’s Rosenberg’s argument for why the U.S. slump could be much worse than the mild 2004-2005 downturn in Britain:
*Britain’s central bank quickly cut rates when the housing market turned soft. The Federal Reserve raised short-term rates 2 percentage points after the housing market started topping out in mid-2005.
*Mortgage rates have risen more in the U.S. than they did in the U.K.
*Prices fell in London but not Britain-wide during the 2004-2005 slump. In contrast, U.S. nationwide prices have already fallen a bit on a year-over-year comparison.
*Britain never had a big overhang of unsold new homes because builders ramped up construction only about 4% a year, vs. closer to 10% a year in the U.S.
This devastating comparison takes away one of the few slender reeds of hope that housing optimists have been clinging to.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.