A senior business reporter with the South China Morning Post looks at how slumping US housing prices can have an adverse impact on mainland entrepreneurs Have you noticed all the talk about houses in the United States in our business pages? And did you wonder why we, on the other side of the globe, care about house prices in Miami, San Francisco or St Louis? The health of the US housing market is important to Asia because if Americans lose the money they have invested in their homes, they'll be short of cash and think twice before buying the things we make in Chinese factories. Money to spend A house is the biggest, most expensive item most Americans will buy. The same is true everywhere, although in Hong Kong and in Chinese society in general, buying properties is a more common way to invest than it is in western culture. Therefore, if a US home owner thinks the price of their house is rising, they feel rich, and they're more likely to spend. They'll throw the ratty old couch out and buy a new one, which is probably made in China. Then they'll replace the carpets, again with Chinese-made ones. Then they might redo the bathroom, with supplies imported from China. This consumer confidence may be nothing more than a sense of well-being, or they may have re-mortgaged their house, and they want to spend the money they have earned from the rising price of their home. The mathematics are quite simple. Let's say you buy a house for US$100,000, and have borrowed US$70,000 of that. A year later, the market has boomed, and the bank says your house is now worth US$150,000. You still owe almost US$70,000 on your mortgage, but the extra US$50,000 value of your house is all yours. Anytime you own something significant, such as land, stocks, a house or a business, the bank will lend you money using that item as collateral, or as a guarantee for the loan. Sinking houses US housing prices have been skyrocketing in recent years, and this makes home owners feel rich. But now the rise in prices is slowing, or even reversing in some places, and this is eroding consumer confidence and the amount of cash available to buy other things. Instead of creating wealth, they are watching their money melt away in the form of lower housing prices. So instead of installing a new kitchen and repainting the bedroom, the owners of houses that have lost value start thinking about saving money. 'Honey, there's no money for a new TV, at least until the market improves. Nope, not buying a new car after all and I don't need more new clothes.' Each time someone in the US thinks this, or decides to spend less money, factories in China lose business. Many economists think a housing crash could have a broader effect on the US economy, because a drop in consumer spending would quickly begin to hurt other industries.
