Housing booms turn to economic bust

Around Europe and the world, smaller economies are already shrinking, with Spain, Ireland, New Zealand and Denmark all suffering from collapsing house prices.

While the financial press concentrates on forthcoming recessions in the major economies, some smaller ones are already shrinking, or about to contract. What they have in common is a property boom that has turned to bust, reducing growth by hitting construction and undermining consumption as falling house prices make people feel less wealthy.

Take Spain. House prices tripled between 1997 and last year and investment in housing accounted for 10% of GDP in 2006, twice the eurozone average. Construction financing became ever-more expensive following eurozone rate hikes and tighter credit last summer, and home sales and prices have since slid.

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