The housing crash is not only slowing the economic recovery in the U.S., but helped spark global financial troubles as well, forcing economic leaders to continue to focus on restoring the U.S. to financial health.
Last week, the International Monetary Fund finance ministers met in Washington, D.C., and urged the U.S. to explore more aggressive action to help people who owe more on their mortgage than their homes are worth. The IMF ranks housing troubles as high as solving the federal deficit when discussing critical areas of concern. They point to the quarter of homeowners who are underwater in the U.S. and the 34 percent drop in home prices since 2006.
Finance ministers also discussed worries about how housing is affecting the economies of other countries. Spain is grappling with a housing crash and subsequent economic fallout, and China is trying to keep that country's housing bubble from bursting, according to a report in The Wall Street Journal.
Globally, the IMF analyzed 25 economies and 99 housing busts over the past 30 years and concluded that the subsequent recessions last at least five years if an increase in household debt preceded the housing bust. Sound like a familiar scenario? That was certainly the case for the U.S. in the years leading up to the recession, when credit was loose. But once the party's over and bills come due, people cut spending and that ripples through the economy, making a bad situation worse.
In China, household debt didn't fuel the current housing bubble, but leaders are worried that the rapid increase in prices will trigger a recession if they begin to fall.
Spain's economic woes are all well-reported in the news and go back to 2007. Banks are holding troubled loans and home prices are still falling. They've dropped 20 percent since 2007, and analysts think they're only halfway to the bottom.
Here at home, we've already seen government programs to reduce mortgage principal and make it more attractive to refinance. The question is will these programs work, or will we be in for more pain? In March, some reports and analysts began predicting a turnaround in housing.
Do you think more government intervention is necessary in this country, or is the housing market in a position now to recover on its own?
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