For example denmarks legal system with enforcement

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house if necessary (it is faster and less costly). For example, Denmark’s legal system with “enforcement courts” makes it easier for a bank to seize the home of a defaulter, whereas the U.S. foreclosure process is deemed to be rather cumbersome (except in the “one action statute” states of California, Idaho, Montana, Nevada, New York, and Utah, where the lenders are only permitted a single lawsuit to collect mortgage debt, following which they typically must take foreclosure action). Having noted these important differences in how mortgage markets work in different countries, it is interesting to consider how they fared during the recent credit cycle. 7.2 The boom-bust cycle across the globe The financial crisis and the Great Recession of 2008-2009 were a worldwide phenomenon. However, the United States and Europe were hit much harder than were the developing economies in Asia and Latin America: notably China, India, and Brazil. The developing economies experienced sharp stock market crashes in 2008 but rebounded dramatically in 2009. The same holds true for the decline in housing markets. There has, however, been considerable variation in the boom-bust cycle of housing credit and prices even among the developed economies. An important question is whether there is any systematic link between the institutional setup of housing finance in these countries and how well the housing and mortgage markets held up during the crisis. Table 7-3 shows the evolution of house prices around the world. In every country, house prices are normalized to be 100 in the first quarter of 1996. The second column shows the level of house prices at the peak of the housing boom, as well as when house prices peaked. Ireland had the largest run-up, with house prices more than quadrupling by 2007.Q1. Britain and Spain also saw house prices more than triple. Australia and France come in just before the United States. Canada had a much more modest boom than the U.S., while Germany and Japan had no boom at all. In fact, house prices in both countries were falling rather than going up. The bust hit the U.S., the U.K., Ireland, and Spain especially hard. House prices in Ireland and Spain are now at their lowest point since the decline started. Compared to the 34%
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96 fall from the peak in the United States, house prices fell 35% from peak in Ireland, 18% in Britain, and 13% in Spain. In sharp contrast, Canada, Australia, France, and Germany all but avoided a downturn in housing markets. While there was a housing boom globally, it is clear that the boom-bust pattern was most severe in the U.S., the U.K., Ireland, and Spain. The recovery also seems to be proceeding at different speeds across the globe. In sharp contrast with the slow recovery in house prices in the United States (+4.5% in 2010.Q1 compared to a year earlier) or the declines in Ireland (-11.0%) and Spain (-4.7%), Singapore (+38%), Hong Kong (+28%), Australia (+20%), South Africa (+15%), and China (+12%) have all seen strong growth. Even Britain has seen increases in house prices of nearly 9% over the last year, reversing the bust. Based on historical price-rent ratios, this latest run-up leaves house prices at elevated levels relative to rents in several countries.
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Christopher Reinemann
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