US housing market dilapidating; Global stability in threat

In the half- yearly Global Financial Stability Report, the International Monetary Fund (IMF) has blamed the slack in US housing market and usurious oil prices, to be the major reason in the slowdown of Global growth.

The report also revealed that household credit is sky rocketing globally since 1997, but the US economy is seeing an opposite situation. There is a high risk of economic slowdown.

US dollar may fall unless policies on savings levels and investment instabilities were changed.

IMF's deputy director Hung Q. Tran said that the chilling US economy will adversely affect personal consumption, which will in turn boil down US growth.

Global growth will suffer badly, especially of regions and areas whose dynamical element of growth is export.

The main determinants of the demand for housing are demographic. However other factors like income, price of housing, cost and availability of credit, consumer preferences, investor preferences, price of substitutes and price of compliments all play a role.

The core demographic variables are population size and population growth: the more people in the economy, the greater the demand for housing. But this is an oversimplification.

US housing market has been suffering due to increased armory and decreased sales activities.

With a slack in US housing market, ten Las Vegas house projects have been halted or put on hold. Toll Brothers, one of the major luxury house builders in the US, have said that their second quarter orders were down 33%.

The National Association of House Builders said that the industry’s sureness in the sector has steeped down gravely since 1995. As a result, most of the mortgage financers, converted their equity into cash in the first quarter 2006 than any other quarter in 15 years.

Due to the sharply lowering activity in the housing sector, Ameriquest, one of the prima mortgage lenders in America, is closing 229 branches and furloughing 3,500 employees.

According to the Commerce Department, housing starts in April were down 7.4% at an annual rate of 1.85 million, the third consecutive monthly decline and the slowest since November 2004.

Rising oil prices, unemployment, coupled with slow down in the housing market, US, the world's largest economy, has seen its trade deficit reach over $64bn.

On the contrast, China released reports of the profits made and posted a record of $18.8bn trade surplus with the rest of the world in August.

The reason behind these differences can be the weakness of Chinese Dollar, which is cheaper and thereby boosted exports.

Another area divulged in the Global Financial Stability Report is the rising household credit.

The emerging countries like Asia, Europe and Latin America contribute nearly 18% to the GDP. Increase in income, restructuring of the bank’s asset portfolios and business models, have trebled consumer credit.

Hung Q. Tran said the increase in consumer debt is not bad, as it makes the financial market more complete. A more developed household credit allows the consumer to smooth the consumption over time and also liquidize long term fixed assets.

The leading Institutions have the advantage to branch out their portfolios due to the developed household credit.