US is in the state of recession, alongsidethe sobering realities of credit crunch, and rising commodity prices. Earlier, on the first week of September the US Government took over the two key playersof the mortgage market, Freddie Mac, and Fannie Mae. Merrill Lynch was boughtby Bank of America and insurance giant AIG took a package of $85 billion USDfrom the US Government. Later the turn of financial events of the countryreached a dizzying pace when Lehman Brothers, the fourth biggest bank in USfiled for bankruptcy as the Government refused to bail it out. Bail out is a process in which the US authorities along with the treasury secretary put $700 billion from thetaxpayer's money and buy toxic sub-prime mortgage debts from the banks so as toenable them to come out of the crisis and start lending money to each other andalso to ordinary Americans. Bail outs may help the banks to breathe, but thehousing markets remain in an awful state with prices crashing down the least inthe past 17 years.
Wall Street Crash:
The housing debacle in USactually started during 2007 causing a credit crisis. This has affected the US stock market which is considered as a ' barometer of confidence' in the economy. Bankersand investors are now feeling reluctant to lend money even to fellow bankers.The negated level of confidence is escalating the short-term interest rates,making the central banks to pump in more billions of dollars to quieten theworld market. A credit crisis causes even a greater crisis to the confidencelevel. This turmoil in the credit market has brought down the value of LehmanBrothers holdings putting thousands of high pay jobs in peril. Economicprospects worldwide would continue to weaken further until the confidence isrecovered.
For a mid size house in places like Stockton, Las Vegas, and Calif, values are decreasing incessantly. Places like New York and San Francisco are in a better position comparatively with Florida and South Californiawhere prices have fallen by 20%. Many brokers who intend to sell homes at thehigh end persuade the seller to list the house at an attractive price. They do this with an intention to drum up the interest and create a buzz.
Market Meltdown ScrapsConsumer Confidence:
Since the market melt down, now; thechallenge for the central bankers is restoring the confidence in the worldmarkets. In the past financial markets were dependent on the foreign investorsfor capital. Now, with the occurrence of unfavorable events in Freddie Mac, andFannie Mae, Asian investors have already lost their sleep. The Lehman Brothersbankruptcy was the last straw on the camel's back. The havoc increased furtherwith Russia shutting its stock market temporarily, and UK's HBOS bank to be taken over by Lloyds TSB. US manufacturers are now waiting apprehensively to see if the meltdown will freeze the credit and threaten customers who arealready shaken by the economy.
In this period of financialcrisis, buyers feel silky, and are reluctant to purchase flashy properties for reasons other than the cost. They believe that US market is not a profitable place to invest and are stepping back for a short time to observe the turn of theevents and make sure that things stabilize. Some customers have decided to putthe building projects on hold until the markets get balanced and they are ableto obtain finance. Current financial crisis is chipping away the consumer'sconfidence and is making them conservative with their holiday spending forThanks giving and Christmas. Items like clothes and shoes will be curtailed intheir shopping budget.
New Horizon for BRICCountries:
On the contrary, emerging marketsof BRIC countries like India, China, Brazil and Russia are on their wings tohave an optimum utilization of this opportunity and utilize this imminent shiftin economy. Companies like Uniqlo, Lindex, and Berghaus have alreadyestablished their operation basis in BRIC countries. This short term shift toemerging markets will be a potential option for retailers to survive throughtough times.
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