US Housing Bubble has popped

“The world economy is on track to grow at a 5.1% rate this year, but the risk of a severe global slowdown in 2007 is stronger than at any time since the September 2001 terror attacks on the United States,” said the International Monetary Fund in a report to finance ministers meeting in Singapore in September.

They mentioned 2 possible triggers:

1. A sharp slowdown in the U.S. housing market
2. Surging inflationary expectations that would force central banks to raise interest rates.

RESTRUCTURING THE U.S. ECONOMY - DOWNWARD
by Kurt Richebächer , The Daily Reckoning, October 27, 2006

Reichenbacher says there appears to be a widespread belief that the U.S. economy is now out of trouble because the Fed decided two weeks ago not to raise interest rates. He points out ;

The party is over. The greatest boom in American housing history is going bust. The impact on the economy is only just kicking in. Demand for homes is sharply down, while the number of vacant dwellings is ballooning - up more than 40% , for existing homes and more than 20% for new homes year over year.

U.S. economic growth has been “asset driven,” according to colloquial language. Sharp ( and miraculous) rises in house prices served private households as the wand providing them with prodigal borrowing facilities to increase their spending. For years, it was the economy’s single motor. The Fed estimates that mortgage equity withdrawals exceeded $700 billion, annualized, in the first half of 2006.... that's folks using the house equity as an ATM.

In 2005, (last full year for which US data are available), new borrowing by private households amounted to $1,241.4 billion. Disposable personal incomes grew $354.5 billion in current dollars and $93.8 billion in inflation-adjusted dollars. Spending increased $530.9 billion in current dollars and $264.1 billion in chained dollars.

This is how it works. US families offset stable (or even declining) dollar income with an unprecedented stampede into indebtedness, up so far by $5.3 trillion, or 77%. Soaring house (and stock prices) added a total of $15.6 trillion to the asset side of their balance sheets, households miraculously ended up with an unprecedented surge in their net worth from $41.5 trillion to $53.8 trillion in the first quarter of 2006.

This is what , Fed Chairman Bernanke noted in a speech on June 13 that “U.S. households overall have been managing their personal finances well.”

Except that those who cannot sell the houses for what they paid for them , and pay the realtor, attorney, moving costs etc., etc., probably don't agree with him.