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Global Shocks Unlikely to Directly Crimp Housing

Mortgage application volume suffered a drubbing Wednesday, even as the U.S. economy fell behind in important global rankings and the euro zone crisis continues to trouble investors. With numerous economists attributing lows for consumer confidence to a bevy of international concerns, _MReport_ spoke with analysts to spot any troubling signs for housing as the global economy wobbles.

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The verdict: Apart from stock market fluctuations, market watchers should keep an eye the fallout from euro zone crises for mortgage rates and credit supply. Still, policymakers and institutions stateside are more likely to dent confidence than events overseas.

On Wednesday the ""World Economic Forum"":http://www.weforum.org/ released a ""global competitiveness report"":http://www3.weforum.org/docs/WEF_GCR_Report_2011-12.pdf that pushed back on assertions about U.S. economic vitality and creditworthiness by ranking the world's largest economy fifth on a list of other countries. A ""_New York Times_ story"":http://www.nytimes.com/2011/09/07/business/global/in-euro-zone-banking-fear-feeds-on-itself.html?_r=2 also raised new worries that U.S. financial institutions with exposure to euro zone markets could tighten credit standards in order to stave off effects from the spreading debt crisis.

Alex Pollock, a resident fellow with the ""American Enterprise Institute"":http://www.aei.org/ and former head of the ""Federal Home Loan Bank of Chicago"":http://www.aei.org/, dismisses the news as largely inconsequential to homebuyers and other players in the U.S. economy.

He highlights the $14.7-trillion GDP growth still enjoyed by the U.S., citing fundamental economic strength that still makes it a ""very big, very entrepreneurial, very rich stable country"" with plenty to offer homebuyers, overseas investors, and consumers at large.

""It's a good illustration really that the credit downgrade hasn't made really made a difference,"" he says, referencing ""Standard & Poor's"":http://www.standardandpoors.com/SPComIPResolver recent decision to negatively rate creditworthiness for U.S. debt.

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The lower rank arrives amid a continuing surge in overseas homebuyer and investor activity. In March the ""National Association for Realtors"":http://www.realtor.org/ found that cash buyers and investors accounted for a startling 35 percent of existing-home sales, numbers that have stayed high with few revisions.

Asked whether an image problem for the U.S. could deter overseas cash buyers and investors, Paul Dales, a senior U.S. economist with ""Capital Economics"":http://www.capitaleconomics.com/, says that foreigners will likely continue to value all-time highs for housing affordability despite debt downgrades.

As for debt crises for economies in euro zone markets? Dales toes the line with assertions he made for a past ""_MReport_ story"":https://themreport.com/articles/how-european-debt-debacle-could-stifle-housing-2011-08-12 that wobbly Europe could both help the housing economy and weaken the recovery.

He says that a rush by scared investors to U.S. Treasury debt could depress mortgage rates, keeping home purchases attractive, even as spreading debt crises make lenders more cautious, a trend that could potentially dampen lending volume.

All signs point to the need for more credit, not less, in the U.S. economy. The ""Office of the Comptroller for the Currency"":http://www.occ.treas.gov/publications/publications-by-type/survey-credit-underwriting-practices-report/pub-survey-cred-under-2011.pdf found in February that banks had squeezed their commercial and retail underwriting standards over 2010 by some 32 and 30 percent, tightening credit for home equity, residential real estate, and commercial construction nationwide.

Underscoring the safety and competitiveness of U.S. debt, which stayed close to 2 percent for 10-year yields Tuesday, Pollock nods to the potential for competition from the European Union if the supranational entity moves forward with widely rumored plans for a fiscal union that could potentially create purchasable debt on par with Treasuries.

Such a deal could raise borrowing costs for U.S. homebuyers if investors flock to a sounder-looking European alternative.

""There you would have a big and deep economy and that might allow for a serious competitor for international reserves,"" Pollock says, adding that German bonds and gold create the only current competition for U.S. debt.

His real concern? The former banking chief worries that ""regulatory over-reactions"" could make the U.S. less attractive abroad, lending weight to the World Economic Forum report.

""The sort of political and regulatory over-reaction represented by the Dodd-Frank Act makes [the U.S.] a less desirable place to do business,"" he says.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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