IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/259.html
   My bibliography  Save this paper

The housing meltdown: Why did it happen in the United States?

Author

Listed:
  • Luci Ellis

Abstract

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.

Suggested Citation

  • Luci Ellis, 2008. "The housing meltdown: Why did it happen in the United States?," BIS Working Papers 259, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:259
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/work259.pdf
    File Function: Full PDF document
    Download Restriction: no

    File URL: http://www.bis.org/publ/work259.htm
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul S. Mills & John Kiff, 2007. "Money for Nothing and Checks for Free; Recent Developments in U.S. Subprime Mortgage Markets," IMF Working Papers 07/188, International Monetary Fund.
    2. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing High House Prices: Bubbles, Fundamentals and Misperceptions," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 67-92, Fall.
    3. Robert Wade, 2008. "The First-World Debt Crisis of 2007-2010 in Global Perspective," Challenge, Taylor & Francis Journals, vol. 51(4), pages 23-54.
    4. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
    5. Paul van den Noord & Chistopher Heady, 2001. "Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys," OECD Economics Department Working Papers 303, OECD Publishing.
    6. Kerry D. Vandell & Thomas Thibodeau, 1985. "Estimation of Mortgage Defaults Using Disaggregate Loan History Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 292-316.
    7. Deng, Yongheng & Quigley, John M. & Van Order, Robert & Mac, Freddie, 1996. "Mortgage default and low downpayment loans: The costs of public subsidy," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 263-285, June.
    8. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    9. Yuliya Demyanyk & Otto Van Hemert, 2007. "Understanding the subprime mortgage crisis," Supervisory Policy Analysis Working Papers 2007-05, Federal Reserve Bank of St. Louis.
    10. Robert B. Avery & Kenneth P. Brevoort & Glenn B. Canner, 2007. "The 2006 HMDA data," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 73-109.
    11. Luci Ellis & Laura Berger-Thomson, 2004. "Housing Construction Cycles and Interest Rates," Econometric Society 2004 Australasian Meetings 335, Econometric Society.
    12. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, March.
    13. Benito, Andrew, 2006. "The down-payment constraint and UK housing market: Does the theory fit the facts?," Journal of Housing Economics, Elsevier, vol. 15(1), pages 1-20, March.
    14. Christopher J. Mayer & Karen Pence, 2008. "Subprime Mortgages: What, Where, and to Whom?," NBER Working Papers 14083, National Bureau of Economic Research, Inc.
    15. James F. Epperson & James B. Kau & Donald C. Keenan & Walter J. Muller, 1985. "Pricing Default Risk in Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 261-272.
    16. Richard K. Green & Susan M. Wachter, 2005. "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 93-114, Fall.
    17. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises; Pitfalls in Financial Liberalization?," IMF Working Papers 95/61, International Monetary Fund.
    18. Christopher J. Mayer & Gary V. Engelhardt, 1994. "Gifts, down payments, and housing affordability," Working Papers 94-5, Federal Reserve Bank of Boston.
    19. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    20. Diaz-Serrano, Luis, 2005. "Income volatility and residential mortgage delinquency across the EU," Journal of Housing Economics, Elsevier, vol. 14(3), pages 153-177, September.
    21. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.
    22. Allen Frankel & Jacob Gyntelberg & Kristian Kjeldsen & Mattias Persson, 2004. "The Danish mortgage market," BIS Quarterly Review, Bank for International Settlements, March.
    23. Edward L. Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 21-39.
    24. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cenkhan Sahin, 2016. "Macroeconomic effects of mortgage interest deduction," DNB Working Papers 514, Netherlands Central Bank, Research Department.
    2. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2010. "Does monetary policy affect bank risk-taking?," Working Paper Series 1166, European Central Bank.
    3. Luci Ellis, 2008. "How many in negative equity? The role of mortgage contract characteristics," BIS Quarterly Review, Bank for International Settlements, December.
    4. Đorđe Đukić & Mališa Đukić, 2009. "The Global Financial Crisis and the Behaviour of Short-Term Interest Rates International and Serbian Aspects," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(4), pages 491-506, December.
    5. Dan Andrews, 2010. "Real House Prices in OECD Countries: The Role of Demand Shocks and Structural and Policy Factors," OECD Economics Department Working Papers 831, OECD Publishing.
    6. Francis E Warnock & Veronica Cacdac Warnock, 2012. "Developing Housing Finance Systems," RBA Annual Conference Volume,in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
    7. Dilyana Dimova, 2012. "The Role of Consumer Leverage in Generating Financial Crises," Economics Series Working Papers 631, University of Oxford, Department of Economics.
    8. Coskun, Yener, 2010. "Global Financial Crisis, Problems in Official Discipline and Designing Optimal Official Discipline Framework (Küresel Kriz, Resmi Disiplin Sorunları ve Optimal Resmi Disiplin Sisteminin Tasarımı)
      [
      ," MPRA Paper 33628, University Library of Munich, Germany.
    9. Susan Wachter & Man Cho & Moon Joong Tcha, 2014. "The global financial crisis and housing: a new policy paradigm," Chapters,in: The Global Financial Crisis and Housing, chapter 1, pages 3-18 Edward Elgar Publishing.
    10. V. Baugnet & P. Butzen & S. Cheliout & W. Melyn & Q. Wibaut, 2011. "End of the crisis in the housing markets ? An international survey," Economic Review, National Bank of Belgium, issue i, pages 53-71, June.
    11. Richard J. Buttimer, 2011. "The financial crisis: imperfect markets and imperfect regulation," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 12-32, April.
    12. Frank Packer & Timothy Riddiough, 2012. "Securitisation and the Commercial Property Cycle," RBA Annual Conference Volume,in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
    13. Diewert, W. Erwin & Nakamura, Alice O. & Nakamura, Leonard I., 2009. "The housing bubble and a new approach to accounting for housing in a CPI," Journal of Housing Economics, Elsevier, vol. 18(3), pages 156-171, September.
    14. Luci Ellis & Mariano Kulish & Stephanie Wallace, 2012. "Property Market Cycles as Paths to Financial Distress," RBA Annual Conference Volume,in: Alexandra Heath & Frank Packer & Callan Windsor (ed.), Property Markets and Financial Stability Reserve Bank of Australia.
    15. Coskun, Yener, 2010. "Global Financial Crisis and Mortgage Finance and Valuation Problems: An Assesment of the US and Turkish Mortgage Systems," MPRA Paper 35301, University Library of Munich, Germany.
    16. Bandyopadhyay, Arindam & Saha, Asish, 2009. "Factors Driving Demand and Default Risk in Residential Housing Loans: Indian Evidence," MPRA Paper 14352, University Library of Munich, Germany.
    17. Ryan Fox & Richard Finlay, 2012. "Dwelling Prices and Household Income," RBA Bulletin, Reserve Bank of Australia, pages 13-22, December.
    18. William R. White, 2010. "The Mayekawa Lecture: Some Alternative Perspectives on Macroeconomic Theory and Some Policy Implications," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 35-58, November.
    19. Crowe, Christopher & Dell’Ariccia, Giovanni & Igan, Deniz & Rabanal, Pau, 2013. "How to deal with real estate booms: Lessons from country experiences," Journal of Financial Stability, Elsevier, vol. 9(3), pages 300-319.
    20. Andreas Horsch, 2012. "Managerial Action And Financial Crisis," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 5(1), pages 7-33, June.
    21. Duffy, David & O'Hanlon, Niall, 2013. "Negative Equity in the Irish Housing Market: Estimates Using Loan Level Data," Papers WP463, Economic and Social Research Institute (ESRI).
    22. Elod Takats, 2010. "Ageing and asset prices," BIS Working Papers 318, Bank for International Settlements.
    23. Musso, Alberto & Neri, Stefano & Stracca, Livio, 2011. "Housing, consumption and monetary policy: How different are the US and the euro area?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3019-3041, November.
    24. Man Cho, 2014. "Housing price and mortgage credit cycles: tales of two countries," Chapters,in: The Global Financial Crisis and Housing, chapter 5, pages 82-111 Edward Elgar Publishing.

    More about this item

    Keywords

    housing construction; housing prices; mortgage delinquencies; mortgage markets; subprime;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:259. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl). General contact details of provider: http://edirc.repec.org/data/bisssch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.