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.

The crisis enveloping global financial markets since August 2007 was triggered by actual and prospective credit losses on US mortgages. Could the crisis have started in another country’s mortgage market as easily? There were so many other countries and markets where credit was booming and asset prices have been high. In many other countries, housing prices were rising even more rapidly; risk spreads in debt markets were low; and highly leveraged merger and acquisition activity was extremely strong. The losses were propagated through the global financial system via trading in mortgage-backed securities and related structured finance products; this propagation of the crisis is not the subject of this paper.2 Rather, the question posed here relates to the underlying defaults, and why they occurred in US mortgages. I examine the background to the recent developments in the US housing finance system, and draw out some of the unusual features of this system. In the analysis presented here, I mainly compare the US experience with that of a peer group of countries with housing booms, consisting of Australia, Canada, Ireland, Spain and the United Kingdom, so far as data are available. The necessarily tentative conclusion is that the US housing sector was not just unlucky. The US mortgage market seems to have been uniquely vulnerable to the prospect of its boom ending badly. An autonomous escalation of delinquencies and defaults that is, before a macroeconomic downturn was not equally likely in all markets that had boomed in response to easy credit conditions.