The U.S. housing market was uniquely vulnerable to collapse, suggests a new working paper from the Bank for International Settlements.

The paper aims to answer the question of whether the U.S. market was inherently susceptible to a housing crisis, or was it just unlucky to be the first to waver, touching off the credit crisis.

It finds that, “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,” it adds. “Given the institutional background, it may have been that the U.S. housing boom was always more likely to end badly than the booms elsewhere.”

“The recent distress in U.S. mortgage markets has demonstrated the potential negative consequences of a temporary easing in lending standards,” it concludes. “The underlying lessons from this are that institutional differences shape the response to global financial developments, and the interaction between these institutional details can make a large difference to the end result.”

“In countries where housing supply is especially flexible, and where tax and finance systems are very advantageous toward housing, an easing in mortgage lending standards might have particularly costly consequences, especially once standards tighten again. This might point to the need for stricter regulation of mortgage underwriting in those countries compared with elsewhere, in order to prevent excessive easing of lending standards in the first place,” it adds.

IE