The focus of the capital markets has been on the subprime crisis in the US. This credit crisis is a direct result of the slowing of the real estate market. If you do not have rising real estate prices, borrowers cannot sell their home for a gain to offset the loan values. Foreclosures become more expensive because the home cannot be flipped to another buyer to pay-off the loan.
If you think this is just a US problem, take a look at the gains in real estate around the world. The US has not been at the high end of the bubble. Of course, not all countries that have had large increase are in a bubble. Price increases are up because many countries have opened credit markets to home buyers. There has been a shortage of housing in some areas and growth has been strong in many countries. But there also is a strong case for the bubble story. Look at the demographics of Europe. Populations are aging, and birth rates are down. It is hard to imagine that these economies have seen over 100% increases in prices over the last ten years.
The real estate problem is going to be a global problem. There is the subprime paper from the US that is held around the globe and the potential decline in local markets. The real estate problem is going to take on different flavor for the rest of the world because there has not been as much packaging of loans to investors. The credit crisis will affect bank balance sheets and cutting local lending. The decoupling story for the global economy does not hold a lot of water when it comes to real estate.
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