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Explaining the United States’ Uniquely Bad Housing Market

Working paper #646
Jesse M. Abraham, Andrey D. Pavlov and Susan M. Wachter

Despite national economic and real estate market trends that are not unique in U.S. history, the housing market woes of the United States appear to be developing into a historic, adverse episode. Indeed, other countries have experienced the same forces and find themselves with nowhere near the level of U.S. economic repercussions, and their housing markets are not nearly as threatened. The authors argue that the United States experienced a unique expansion of credit and deterioration of residential mortgage lending standards. This shift in the credit supply temporarily fueled housing prices beyond levels justified by favorable demographic and macroeconomic conditions. The subsequent withdrawal of credit has resulted in severe housing market declines as well as contributed to the adverse macroeconomic conditions in place today.

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