The Housing Meltdown: Why Did it Happen in the United States?

36 Pages Posted: 28 Nov 2008

See all articles by Luci Ellis

Luci Ellis

Reserve Bank of Australia; Bank for International Settlements (BIS)

Date Written: September 2008


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.

Keywords: housing construction, housing prices, mortgage delinquencies, mortgage markets, subprime

JEL Classification: G21, R21

Suggested Citation

Ellis, Luci, The Housing Meltdown: Why Did it Happen in the United States? (September 2008). BIS Working Paper No. 259, Available at SSRN: or

Luci Ellis (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

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