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Monday, October 4, 2010

Mortgage Markets in Selected Developed Countries

N. Eric Weiss
Specialist in Financial Economics

The United States, Canada, Denmark, and Australia are advanced economies that share many features, but their approaches to financing homeownership have differed. As the U.S. Congress considers housing finance reform, the experiences of these other nations may suggest some potentially useful policy approaches.

In recent years, homeownership rates in the United States, Canada, and Australia have been similar: 66.9% in the United States, 68.4% in Canada, and 69.8% in Australia. Denmark’s homeownership rate of 54.0% is low for this group of nations and for countries with developed economies. 
·         Of these four nations, only the United States and Denmark offer mortgages with payments that are fixed for 30 years. In Australia and Canada (and most of the world), mortgages adjust to current interest rates at intervals of one month to five years. 
  • Of the four nations, between 1991 and 2008, house prices increased the most in Australia and Denmark, but other countries including Ireland, the Netherlands, New Zealand, and Norway had still greater increases. 
  • Underwriting standards have been the most flexible in the United States and less flexible in Canada and Denmark. Some homeowners in the United States would not qualify for mortgages in Canada or Denmark.
  • The United States and Australia have programs to encourage homeownership. Canada offers limited support for home purchases, and Denmark has no homeownership programs. Nevertheless, homeownership rates are similar in the United States, Australia, and Canada. 
  • U.S. and Canadian governments directly or indirectly guarantee most mortgages and assure lenders that mortgage payments will be made in a timely manner. Australia and Denmark have no such government guarantee.
  • In Canada, Denmark, and Australia, borrowers who default remain responsible for any unpaid balances, but it is not clear how frequently this is pursued. In the United States, the ability of lenders to seek compensation beyond a foreclosure sale depends on state law and frequently this remedy is not invoked. 
  • Capital gains from the sale of one’s main home are usually tax-exempt in all four nations; all but Canada allow taxpayers to deduct mortgage interest payments. 
  • Only the U.S. government has a maximum size on the mortgages that it will support. In the other nations, government support is offered to all mortgages.

Date of Report: September 29, 2010
Number of Pages: 32
Order Number: R41432
Price: $29.95

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