[FOUNTAIN]Housing boom lifts the world"The houses that saved the world," - that is the headline on the cover of the March 28th issue of the Economist, a business magazine based in the United Kingdom.
The Economist, in an editorial with the same title, argues that consumer confidence, propped up by rising house prices, has saved America and the world from the deep economic downturn that was predicted after America's high-tech bubble burst in 2000. The United States, the magazine says, entered the recession with low inflation, freeing the Federal Reserve to cut interest rates, facilitating millions of home mortgages, which pushed up house prices. Despite falling stock prices, consumers continued to spend as their most important asset, their house, gained value.
Over the last year, the average price of a home in America has risen 9 percent, the fastest-ever increase in real terms, the magazine says. From Britain and Australia to France and Spain, house prices have been rising at their fastest pace in real terms since the late 1980s, the magazine says. An exception to the rise is Germany, where the economy slumped more severely than other economies last year.
The Economist article also explains the current situation in Korea, where an economy driven by booming construction and rising apartment prices has boosted consumer spending, which, analysts say, helped Korea post higher than expected (3 percent) growth last year.
Many faltering companies in the United States were cushioned by robust growth in house prices. Fannie Mae is a case in point. Fannie Mae, a government-run financial services company, placed seventh among America's top 500 companies in last week's Forbes listing. Last year, Fannie Mae, which was established in 1938 to provide an efficient secondary mortgage market, posted a 15 percent increase in revenues to $50.8 billion. Its net profit ballooned 37 percent to $6 billion. With total assets of $800 billion, the firm is outstripped by only Citigroup in the United States.
Fannie Mae, a contraction of the Federal National Mortgage Association, was founded under Franklin Roosevelt. The firm ranked 14th in 2000, but jumped seven notches last year. The leap was attributable to low interest rates and a buoyant housing market.
The Economist did not forget to warn that housing prices might also plummet, like the bursting of the information technology bubble, if interest rates go up. So is the case in Korea. House prices cannot bolster the economy forever.
The writer is a JoongAng Ilbo editorial writer.
by Sohn Byoung-soo