The Housing Meltdown: Why Did It Happen In The United States?
The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Was the United States just unlucky to have been the first to experience a housing crisis? Or was it inherently more susceptible to one?
I examine the limited international evidence available, to ask how the boom-bust cycle in the US housing market differed from elsewhere and what the underlying institutional drivers of these differences were. Compared with other countries, the United States seems to have: built up a larger overhang of excess housing supply; experienced a greater easing in mortgage lending standards; and ended up with a household sector more vulnerable to falling housing prices. Some of these outcomes seem to have been driven by tax, legal and regulatory systems that encouraged households to increase their leverage and permitted lenders to enable that development. Given the institutional background, it may have been that the US housing boom was always more likely to end badly than the booms elsewhere.
September 24th, 2008 at 8:01 pm
i believe the saying is: “nothing exceeds like excess.” america always does things, both good and bad, bigger and better than any other. “more is better” is our unoffical national motto. i do not mean to disparage our country, i love it very much– just an observation on how it is…
September 25th, 2008 at 12:58 pm
[...] Was the end of the U.S. housing boom inevitable? (Alea) [...]
September 27th, 2008 at 6:25 pm
I’m curious, do you think credit cycles are intrinsically MORE deadly on the economy than regular ECONOMIC cycles? Or is it the unique presence of credit derivatives in THIS credit bust that has extracted so much blood?
September 27th, 2008 at 6:39 pm
Interesting read. America’s current credit system has always had the potential to create this kind of meltdown. It was only a matter of time.