How the current housing boom ends could decide the course of the entire world economy over the next few years.
Soaring house prices have given a huge boost to the world economy. What happens when they drop?
The Economist print 16/6 2005

This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history

Throughout history, financial bubbles — whether in houses, equities or tulip bulbs — have continued to inflate for longer than rational folk believed possible... It is impossible to predict when prices will turn. Yet turn they will.

One other big difference between houses and shares is more cause for concern than comfort: people are much more likely to borrow to buy a house than to buy shares.

A study by the IMF found that output losses after house-price busts in rich countries have, on average, been twice as large as those after stockmarket crashes, and usually result in a recession.

Even if prices there initially just flatten rather than fall, this will hurt consumer spending as the impulse to borrow against capital gains disappears.

It is by encouraging such borrowing that rising house prices have given a bigger boost to America's economy than elsewhere. Two-fifths of all American jobs created since 2001 have been in housing-related sectors such as construction, real-estate lending and broking.

The housing boom was fun while it lasted, but the biggest increase in wealth in history was largely an illusion.

Full text

Since 1997, home prices in most countries have risen by much more in real terms (ie, after adjusting for inflation) than during any previous boom. (The glaring exceptions are Germany and Japan, where prices have been falling.) American prices have risen by less than those in Britain, yet this is still by far the biggest boom in American history, with real gains more than three times bigger than in previous housing booms in the 1970s or the 1980s.
The Economist print edition, Jun 16th 2005