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Ba-dum -- Jaws Sinks Teeth into Housing on Both Sides of Atlantic
Ba-dum, ba-dum, ba-dum…
It's the sound of that terrifyingly quiet soundtrack from the movie, Jaws, to warn us that the man-eating shark is nearby. In an odd twist of fate, Martha's Vineyard, the island where Steven Spielberg filmed the 1975 movie just shut down its beaches briefly this week because of a shark sighting.
Ba-dum, ba-dum, ba-dum…
But those who should be most worried about a shark attack aren't seaside bathers on Martha's Vineyard. It should be anyone who cares about the damage that a housing crisis can do to Europe's economies.
This housing shark has been with us since the early 1990s. It actually started feeding in Japan, as land prices spiked up in a full-fledged mania and then dropped back by 76%. The chart of that mania looks something like an elongated shark's tooth. And the Japanese economy is still recovering from the deep wounds to its real estate sector.
A few years ago, the housing shark moved across the Pacific to the United States where housing prices have gone up more than 750% since 1972, according to the U.S. National Home Price Index. But now, prices have been falling for two years, even as foreclosures have been rising. This week, new data shows that foreclosures grew by more than 50% in June compared with last June.
Ba-dum, ba-dum, ba-dum…
Who's next on the shark's sonar? It has already propelled swiftly across the Atlantic Ocean, coming first to Great Britain to consume a large chunk of the housing market there. A recent Economist headline, declared: "Gloom Britannia – Britain's ailing housing market will affect the economy, too." Now it's terrorizing the rest of Europe. Whatever you do, don't go in the water.