"The problem is not lack of money, the problem is that people are afraid," Lula said. "Workers become afraid of losing their jobs and don't buy anything. But if they don't purchase, what happens? Factories close and jobs are lost, which is what they fear."
Nicola Tingas, an economist at Sobeet, a think tank in Sao Paulo, said Brazil was entering the throes of the same "crisis of confidence" already affecting other countries. "People don't know what to expect next year, or employers how many people they may have to cut."
The housing boom was an integral part of Brazil's economic success story that had Lula touting the nation's imminent entrance into the First World. In the first nine months of this year the total value of mortgage loans made rose 89% from the year-earlier period.
In Sao Paulo alone, 67 new housing developments opened subdivisions in October, three times the average number of new developments unveiled monthly over the first half of the year. Fueling the demand were mortgage loans that featured 11% interest rates, which is low for Brazil. As recently as 2002, mortgage rates were 40%.
Builders were encouraged by assessments like that of Standard & Poor's Corp. analyst Eduardo Chehab, who estimated Brazil was suffering from an 8-million-unit housing deficit. That seemed to make it a huge underexploited market for construction companies.
Investors here and abroad saw that figure and snapped up publicly traded shares in home-builder companies. Cyrela and other home builders raised an aggregate $6 billion in public stock offerings from 2005 to 2007, Chehab said, making it the leading industry in terms of new stock issues over that period.
But the credit crunch and collapsing stock market of the last two months have taken their toll. Mortgage applicants are having a tougher time qualifying for loans, and home builders are unable to get short-term loans with which to buy land and build more new houses.
"Banks are just sitting on their money and won't lend," said Lisa Schineller, a sovereign debt analyst at Standard & Poor's. Contracting credit is one reason S&P is cutting its 2009 economic growth estimate for Brazil to 2.5% from this year's 5.25%.
The Lula administration has ordered the two largest publicly controlled mortgage lenders, Caixa Economica Federal and Banco do Brasil, to keep mortgages available at September rates of 12% or less. The mandate is politically motivated, observers say, since Lula wants to preserve the appearance of economic well-being at all costs to smooth the path for his chosen successor candidate in the 2010 elections.
"But these efforts are not going so well," Tingas said. "People are sitting back and waiting to see what happens. The real negative impact is coming early next year."
Said S&P's Schineller: "There's no doubt that the global financial crisis has filtered down to Brazil. We'll see a strong slowing of the economy next year."
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Special correspondent Marcelo Soares contributed to this report.
chris.kraul@latimes.com
