The fizzling out of the biggest global housing boom in recent history could pose a serious threat to the Irish economy, according to the OECD today.
In its twice yearly report on international economic prospects, the Organisation for Economic Co-operation and Development says that one of the biggest housing booms in recent history is fizzling out in industrialised countries, but that it only poses a serious threat to the economies of a few.
'Outside the US the downturn in housing is much less obvious, so far there is no clear evidence of a major downturn in Europe, except in Ireland,' the OECD said.
'While the slowdown in housing markets, which is now evident in most OECD countries, will damp growth prospects, it is expected to act as a severe brake in only a few,' the OECD said in its twice-yearly report.
Beyond the trouble the US housing slump is causing, the OECD highlighted housing investment downturns in Ireland and Spain and the risks Britain faces if there is an abrupt reversal of previously rapid house price gains, because of the close link to household spending.
'In particular, downturns in housing investment already under way in the US, Ireland and to a lesser extent Spain are likely to become more pronouced,' said the OECD.
'It is also more likely that slowing or falling house prices in some countries where housing wealth effects or mortgage equity withdrawal have previously been an important factor supporting consumption, including the US and the UK, will contribute to some further slowdown in demand.'
Most housing markets - some of them ones which boomed more than the now-nosediving US market - were already slowing when the crisis in the US sub-prime mortgage market triggered a far broader seizing-up of credit markets in August, the OECD said.
'However, housing investment and real house prices are at present only falling in a few countries, with notably large falls in housing investment for the US and Ireland,' it said.
The OECD predicted further large falls in housing investment in Ireland and Denmark between now and the end of 2009, saying it saw falls of 2 percentage points and 1.5 percentage points respectively as a share of gross domestic product.
More modest falls could be expected in France, Britain, the Netherlands, Spain, Canada and New Zealand, it said. Germany, Austria, Norway and Sweden could expect rises, it said.
As for house prices, Spain led the boom between 2000 and 2006 with annual rises of 11.2% and France next with rises of 9.5% a year. Many others such as Britain, the Netherlands, New Zealand and Australia showed bigger price rises than the 6.2% annual increase in US house prices for the period, OECD figures showed.
Relative to incomes, the Netherlands looked dearest, with New Zealand a close second.
Meanwhile, the OECD forecast that economic growth in Ireland, as measured by GNP, would drop to 3% in 2008 because of a slump in house-building. But it said growth would pick up again to 4.5% in 2009.
