Abstract
Home ownership presents a crucial financial and economic issue that has been characterized by different trends around the world. In the 21st Century, home ownership has become the top priority for most adults not only in the United States of America but also other parts of the world. For many people, owning a home is the ultimate goal in life since it is associated with a comfortable lifestyle devoid of paying huge amounts of rents. The main emphasis in this research paper will be placed upon the identification of the difference between buying homes in the United States of America and other countries from an international perspective.
In line with this research, some of the specific areas that shall be addressed include the real estate approach, home search process, interest rate and credit rating processes among other aspects. Consequently, this will provide an excellent understanding of the current and future trends as pertains to buying homes not only within the United States of America but also other parts of the world.
Introduction
Whereas some individuals choose to save money in order to buy homes later in life, most people are increasingly opting for mortgages as the most suitable alternative towards home ownership. Home buying trends in the United States of America have been characterized by extensive fluctuations in recent years especially since the turn of the New Millennium. (Acton, 2011)
Even though the rates of buying homes in the United States of America are more or less similar to the other developed countries, it is of paramount importance to highlight the fact that the rates of mortgage payments are characterized by extensive variations. For instance, the average repayment rate for mortgages in the United States of America is about 20 years whereas the average from an international perspective is about 10 years. There is therefore the dire need to conduct a detailed research in order to examine the main factors and/or issues that have contributed towards these kinds of trends.
Background/History
Despite the fact that extensive research has been carried out by different analysts with regard to buying homes in USA and other countries, few researchers have sought to establish the underlying differences between the two perspectives. From a historical perspective, the trends of home ownership in the United States of America have been characterized by relative stability. However, this has dramatically changed in recent years in that the rates of home ownership in the country are on the decline. From an international perspective, the average rate of completing mortgage payment has been historically low especially within the European Union. (Newell, 2011)
Even though there are numerous factors that influence the trends of buying homes in different countries, it is of paramount importance to highlight the fact that the prevailing economic conditions are extremely influential. For instance, in the wake of the 2008/2009 global financial meltdown, the rates of home ownership in almost all parts of the world took a tumble. This was a direct consequence of the world economic recession. In addition to these kinds of economic perspectives, other factors such as government policy and interest rates also play an instrumental role towards home ownership in the United States of America and other parts of the world. (Ferguson, 2008)
Home Ownership: International And Usa Statistics
With an average home ownership rate of 65%, the United States of America is currently ranked at position seven in the world. Even though this figure is quite impressive, it is still quite low as compared to the high rates in Western Europe. Ireland is ranked at position one with an average home ownership of 83%; this impressive figure highlights the fact that only a small proportion of Irish people have not bought homes. In Italy, the average home ownership stands at 78% which is also an impressive figure as compared to other countries not only within the European zone but also from an international perspective. (Newell, 2011)
Even though Italy had recently experienced a massive downturn in terms of economic performance, the national trends for buying homes were relatively stable. In both Australiaand the United Kingdom, the average home ownership stands at 69%; this is just slightly above the USA average. Within the Scandinavian countries, the average rates of buying homes are also quite impressive with rates of home ownership ranging between 65 and 67%. With an average home ownership of 43%, the German population is less keen about buying homes as opposed to other countries in the western world. This is a factor brought about by the high costs of living in Germany coupled with stringent government policies that discourage extensive borrowing.
Mortgage Lending Process
Mortgage Lending Process in the United States of America
The mortgage lending process in the United States of America is characterized by different stages. Prior to securing a mortgage, the successful applicant has to fulfil all the requirements of the specific phases and/or stages of the mortgage lending process. Before examining the specific stages of the mortgage lending process in the United States of America, it is of paramount importance to highlight the fact that mortgages in the country are provided by both private and public agencies. Most government employees opt for mortgages from government-allied agencies; on the other hand, employees in the private sector have huge preference for mortgages from private companies. (Baum, 2012)
Different agencies offer mortgages at different rates; however, this fact notwithstanding, the government regulates these rates in order to avoid exploitation of citizens. The mortgage lending process in the United States of America is mainly referred to as origination. During the origination process, the applicant for the mortgage submits a formal request to the lending agency. The mortgage agency then examines the application from different perspectives; to begin with, the agency has to review the applicant’s creditworthiness.
The review of applicant’s creditworthiness stands out as one of the most important stages of the mortgage lending process in the United States of America. This is mainly due to the fact that the country has high rates of credit defaults more so compared with other developed nations around the world. After the review of the creditworthiness, the next stage in the mortgage lending process encompasses the examination and/or analysis of the applicant’s financial history. (Newell, 2011)
This mainly pertains to issues such as bank statements, payslips and the like; these perspectives are also extremely important with regard to the examination of the applicant’s creditworthiness. During the mortgage lending process in the United States of America, there are numerous federal and state laws that are used for regulation purposes. For instance, the Truth in Lending Act is a federal law pertaining to the issuance of mortgages by both government and private agencies. One of the most notable provisions enshrined within the Truth in Lending Act pertains to the disclosure of all charges and costs associated with the mortgage. This implies that the lending agency must ensure that there are no hidden charges during the issuance of mortgage to any applicant.
Apart from the federal laws, the mortgage lending process in the United States of America is also controlled and/or regulated by various state laws; these are characterized by variations from one state to the other. After verification of all conditions has been accomplished, the applicant is awarded with marks i.e. the credit score. The credit score for issuance of mortgages vary from one lending agency to another; the applicant is only issued with the mortgage if he or she meets the required threshold in terms of credit score. (Ferguson, 2008)
The use of credit score during the mortgage lending process in the United States of Americais also characterized by excellent levels of efficiency particularly in cases whereby there is a huge number of applicants. Apart from credit history, another important factor of consideration when during the mortgage lending process in the United States of Americapertains to the applicant’s income. Essentially, applicants with impressive incomes and/or earnings are more likely to attain a higher credit score as compared to applicants with low earnings. (Acton, 2011)
Even though this approach has been widely criticized in the United States mortgage sector, agencies consider it as an excellent strategy for evaluating the creditworthiness of mortgage applicants. As a result of this type of approach, it is clearly evident that the individuals with high earnings have higher percentages of home ownership as compared to low-income earners. (Baum, 2012)
Mortgage Lending Process – International Perspectives
The mortgage lending process presents one of the most effective ways of highlighting the differences between buying homes in the United States of America and other parts of the world. As mentioned earlier in the research paper, the average default rate for mortgage loans and other forms of credit in the United States of America is quite high as compared to other parts of the world. (Newell, 2011)
Within the European Union, the issuance of mortgage loans is characterized by high levels of variations in terms of rates. As a result of this approach, different agencies offer different rates on their mortgage loans. However, this is not the case in the United States of America where a fixed rate system for issuance of mortgages is widely used. In the European zone, the assurances from the government are strongly emphasized when it comes to collateral.
However, this is not the case in the United States mortgage sector in that lending agencies strongly emphasize on assets as the main basis for collateral. Whereas the mortgage sector in the United States of America is characterized by numerous penalties before and after the issuance of mortgage, the situation is different from an international perspective. This is due to the fact that most lending agencies in countries such as the United Kingdom, Japan and Australia are reluctant to use penalties as the main approach towards the encouragement of repayments. (Acton, 2011)
From an international perspective, it is also of paramount importance to highlight the fact that non-recourse debt is rarely applied to mortgages; however, this approach is quite predominant within the mortgage sector in the United States of America. In Britain and many countries within the European zone, the mortgage sector is mainly controlled by building societies. This has played an instrumental role towards enhancing the rates of home ownership. The mortgage lending process in the United Kingdom is also characterized by less stringent regulatory and documentation procedures as compared to the numerous complexities that characterize the mortgage sector in the United States of America. (Ferguson, 2008)
Credit Rating Process
The credit rating process is a crucial part of the home buying industry and/or sector not only within the United States of America but also from an international perspective. This process encompasses the determination of the risk involved prior to issuance of any type of mortgage to an applicant. As with the mortgage lending process, credit rating is also characterized by different stages. (Acton, 2011)
The first stage of the process takes place after the lending agency receives an official application for mortgage from an individual. In the United States of America, most mortgage organizations hire the services of a rating agency. In sharp contrast, this is not the case in other parts of the world whereby most mortgage companies opt to use internal mechanisms and/or systems during the credit rating process.
In instances whereby the mortgage company uses the services of an external agency for credit rating, it is extremely important that high levels of confidentiality should be maintained. This is mainly due to the fact that the mortgage company must provide detailed information as pertains to the client. After the submission of application, the next step in the credit rating process pertains to the establishment of an assessment team; essentially, the assessment team should encompass several experts in credit rating.
Once the assessment team has been constituted, the next stage in the credit rating process pertains to the evaluation of all the relevant information that pertains to the mortgage applicant. Such information is comprised of employment history, current level of income or earnings, personal bank statements and the like. In most cases, the assessment team might schedule a face to face meeting with the applicant; this goes a very long way towards evaluating his/her commitment towards the repayment process.
Consequently, the assessment team compiles a comprehensive report documenting the findings and recommendations with regard to the applicant’s credit rating. This approach is commonly used in the mortgage sector in the United States of America. However, in other countries like United Kingdom, the mortgage companies work closely with the government in order to verify the creditworthiness for different applicants. (Baum, 2012)
Even though most analysts consider the credit rating process as being too stringent and time-consuming, it is associated with various advantages. Firstly, the credit rating process contributes immensely towards the enhancement of the minimization of risks by mortgage companies.
Through the credit rating process, mortgage companies are in an excellent position to identify the risks involved while issuing mortgage loans to specific individuals. For instance, an applicant with a poor credit rating is highly likely to default payments as opposed to an applicant with an excellent credit rating. The credit rating process is also beneficial in that it helps mortgage companies to avoid incurring operational losses. This is due to the fact that they are in a better position to enhance the repayment of mortgage loans and thus maximize profits. (Acton, 2011)
The Interest Rate Process
One of the most notable differences between the home buying process in the United States of America and other parts of the world is brought about by variations in the interest rate process. Whereas the United States mortgage sector is characterized by a fixed-rate system, the international mortgage sector presents a different situation. In Britain, the interest rates for mortgages are characterized by high levels of variation.
This is mainly due to the fact that lending agencies can determine the interest rates independently. Variations for interest rates in the mortgage sector are also brought about by the fact that most lending agencies provide different rates for the short term and long term. However, a uniform interest rate is used in the United States of America for both the short term and long term mortgage loans. (Ferguson, 2008)
The uniform interest rate for mortgages in the United States of America is one of the main reasons as to why the country is characterized by high rates of default as compared to other countries in Europe and other parts of the world. The Federal Reserve of the United States of America stands out as one of the most influential forces behind the nature of interest rate process for mortgages in the country. This is mainly brought about by the fact that the institution is charged with the responsibility of formulating the country’s monetary policy. (Acton, 2011)
The Home Search Process
Apart from interest rate, another major way in which the differences between home buying in United States and other countries may be analyzed pertains to the home search process. In simple terms, the home search process encompasses the various stages and/or steps that constitute the acquisition of a home by an individual. In most cases, the specific process used by an individual to search for a home is strongly determined by the amount of resources at his or her disposal. In addition to the financial capabilities, the home search process is also strongly influenced by the prevailing legal and regulatory frameworks within a country.
In some countries such as the United Kingdom, the government plays a major role in the home search process by providing information to its citizens. On the other hand, the home search process in the United States of America is characterized by extensive individual input. Following is an analysis of the various perspectives as pertains to the home search process in the United States of America and also from an international point of view. (Newell, 2011)
The Home Search Process in the United States of America
The home search process in USA is characterized by various unique features that are quite different as compared to other parts of the world. Firstly, agents are widely considered as important players in the process of searching homes. As opposed to the traditional approach whereby individuals conduct independent surveys pertaining to prospective homes, the agents perform the baseline surveys and provide the client with all the viable options. (Baum, 2012)
Apart from the extensive use of agents, another approach towards home ownership in the United States of America pertains to the use of internet. This is whereby a prospective home-owner shops for homes on the internet. This unique approach has been strongly enhanced by the fact that the United States of America has one of the most advanced technological infrastructural systems in the world. Consequently, dealers in real estates and other types of property have provided detailed information on their websites as pertains to the home search process.
International home search process
In sharp contrast to the home search process in the United States of America, high levels of centralization are evident in most parts of the world more so in places such as the United Kingdom, France and Japan. Centralization of the home search process is achieved in such a way that all available homes are listed in a national directory. The directory is then made available within the public domain in order to enhance accessibility. Consequently, the centralization of the home search process in these countries has enhanced the accessibility of information by potential. (Ferguson, 2008)
The Real Estate Approach
In addition to the aforementioned economic perspectives, the real-estate approach presents another platform from which the differences between international and United States home buying can be analyzed. In very basic terms, real estate comprises all property and/or assets within a specified area. Consequently, this implies that real estates include land and the entire natural and artificial resources contained within that particular area. In all parts of the world, real estate business stands out as one of the most lucrative sectors and it is therefore a crucial element and/or part of any given economy.
On an annual basis, the real estate sector in the United States of America contributes billions of dollars to the federal economy; the significance of the real estate sector is also similar in other economies more so within the industrialized world. When it comes to home ownership or buying homes, the real estate plays different roles. Firstly, it helps in the determination of the inherent value of homes in different parts of the world.
For instance, in the United States of America, most valuators employ the real estate approach while examining the actual value of homes. Even though similar trends are evident in other countries, the influence of the real estate approach is quite extensive in the United States of America. This is also one of the main reasons as to why the cost of buying homes in the country is quite high as compared to the situation in other countries more so in Europe and the Far-East. (Newell, 2011)
High Cost Of Buying Homes In The United States
Buying homes in the United States of America is characterized by high costs especially as compared to the prevailing situation in other parts of the world such as Europe, Japan and Australia. Consequently, it is of paramount importance to critically examine some of the main reasons that have contributed towards this kind of trend.
Extensive regulatory mechanisms
As mentioned earlier, the mortgage sector within the United States of America is characterized by extensive regulatory mechanisms. This is also the case in the entire process of seeking new homes whereby there are numerous stringent regulations that must be fulfilled by all the prospective home owners. To begin with, both the mortgage company and the individual should oblige to the provisions that have been enshrined in the Truth and Lending Act. (Acton, 2011)
This act requires that all the involved parties in the process of issuance of mortgages provide accurate information. Such a provision has served as a major stumbling block towards the accessibility of mortgage loans by prospective home owners in the United States of America. In addition to the Truth in Lending Act, another regulatory aspect that has complicated the process of buying homes in the United States of America pertains to the numerous legal restrictions that have been established in different states. Most states in the USA have introduced stringent regulations as pertains to mortgage loans; this approach is mainly aimed at enhancing the collection and/or generation of revenues by state authorities. (Ferguson, 2008)
Despite the critical role played by revenue collection activities within an economy, it is of paramount importance to highlight the fact that the extensive legal provisions by different states has served to complicate the process of buying homes. Different analysts have been assertive that the stringent state regulations in the United States mortgage sector has played an instrumental role towards the reduced rates of home ownership in the country. This is not the case in other countries within the developed world in that they provide an excellent environment for individuals to obtain funds in order to buy homes.
High rates of unemployment
During the last decade, the United States of America has been struggling high rates of unemployment. This problem has been occasioned by a combination of numerous factors including the 2008/2009 global financial recession, fluctuations in the prices of crude oil, and high interest rates among others. In essence, when a country has high rates of unemployment, there is a very high likelihood that the standards of living are also on the decline. (Acton, 2011)
Consequently, it becomes quite difficult for such individuals to afford costly property such as houses. This has been the case in most parts of the United States of America as a result of the high rates of unemployment. Presently, approximately 10 million people in the United States of America are unemployed. For these kinds of individuals, putting bread on the table is much important as compared to applying for a mortgage. The high rates of unemployment in the country have also resulted in the rise of costs of living and as such, housing companies have inflated the prices of homes.
High costs of construction
In addition to extensive regulatory mechanisms and high rates of unemployment, another factor that has contributed immensely towards the rising costs of buying homes in the United States of America pertains to the high costs of construction. Almost all the raw materials that are used within the United States’ construction industry have been characterized by massive increase in prices. Consequently, this has resulted into huge increase in the cost of homes in the country. (Newell, 2011)
From a different perspective, the housing sector has also been characterized by extensive increases in taxation; this has been as a result of the government’s quest to increase the rates of revenue generation for the national budget. Another important aspect of consideration with regard to the high costs of construction in the United States of America is the fact that most of the raw materials for construction are obtained overseas. This has also been an influential factor with regard to the high costs of construction in the United States of America. (Baum, 2012)
Government policy
In addition to the stringent regulatory framework at the state level, the government policy has also been influential towards the high costs of buying homes in the United States of America. This brought about by the fact that the federal government has been keen to develop policies that comprehensively regulate the housing industry. This kind of regulation has resulted into the escalation of the cost of new houses by industry players especially in the private sector.
The Housing Bubble In The United States Of America
The housing bubble in the United States of America refers to a period during which there was a massive increase in the price of homes throughout the country. Housing bubbles may be described as heightened values of commodities far beyond the fundamental price. This condition is a worldwide issue but has been of a major concern in the US, European countries and countries in the Far East Asia.
It mostly leads to occurrence of an economic bubble where prices of commodities rise to intolerable limits before going down – it is a process that occurs in stages; from fundamental price, rise in prices, peak and unsustainable price levels and later, to falling of the prices – through a period which lead to economic crises depending on the extent and timeline of the changes. In the US, land prices in particular have been observed to rise sharply considerably between 2001 and 2006 in over 26 states, although the prices have been on the rise from late 1980s. (Baum, 2012)
It has been confirmed that such price inflations make tenants to face difficulties in paying the high rents. The principle reason for this is the uncompromising income dynamics that do not readily change in proportion with changes in prices. High land prices lead to high home valuing and land owners may subsequently be subjected to heightened mortgage debts in respect the prevailing peak property value especially when a fall in home values follows as expected. Paying respect to housing bubble, in exception of the UK, European countries have not faced as severe bubbles as the one faced by the US in the periods between 2005 and 2007. (Acton, 2011)
Real estate bubbles however have been evident in such countries as Hungary and Belgiumslightly on mild basis between 2003-2005 and 2007-2008 respectively. In the US, the most severe housing bubble that struck especially between 2005-2007 saw many land and home owners face difficulties in paying mortgages that led to the intervention of the central bank and the government concerns. (Baum, 2012)
An economic crisis was realized after realization of losses of over 450 billion dollars that were as a result of complete inability of the land owners to pay their mortgages in time. In 2012, the US government announced that the land and home prices have restored to the fundamental price. However, as discussed further below, there is less assurance while investing in lands and/or homes in the US than it is in other countries, taking the severity indices of bubble ever recorded in history as the reference points. Given the difficulty therein when it comes to identifying existence, the extent and the possible effects of an economic bubble, and other factors that affect the preference of one notwithstanding, it is only safe to deduce that countries that have shown mild housing bubbles such as Hong Kong and European countries provide safe grounds for owning land related properties at individual level. For a national economy safety, selecting the most suitable policy that defines fair and sustainable terms remains the ultimate strategy for conscious governance – economic dynamics often mean proportionate effects to the end consumers, the land owners. (Ferguson, 2008)
During the housing bubble in the United States of America, most buyers rushed to purchase homes and/or houses at inflated prices. Indeed, some individuals purchased homes at unrealistic prices that would not even be supported by their meagre earnings. The housing bubble was also occasioned by the fact that most people perceived it as an excellent opportunity to make hefty profits. Despite the federal government’s efforts to avert the housing bubble, the extensive deregulation in the industry served as a major stumbling block towards the government’s rescue mission. (Acton, 2011)
Causes Of Housing Bubble
Housing tax dynamics
Theoretically, housing tax policy that a country adopts basically will not be a cause of a housing bubble if it remains constant than any changes in tax rates will do. Changes in the amount of tax collected certainly send direct ripple effects to the prices. In US, the various housing tax policy reviews have not done any better than increase taxation rates.
This means that the policy has constantly increased capital gains for sellers, a fact that has led to more and more people investing in buying lands and/or homes while the highest ever recorded capital gains after a sale stood at 0.5 m US dollars for a couple. Many land owners thus became willing to sell their lands and homes. The result is increased supply of available land and homes for sale which, in line with economic theory, pulls down the prices. (Newell, 2011)
The 2008/2009 Financial Recession
Among all the factors that have contributed to the housing bubble in the United States of America, none has had far-reaching implications like the 2008/2009 global financial recession. This is mainly due to the fact that the recession was associated with numerous economic ramifications such as increase in interest rates, rise in the prices of crude oil, inflation of basic commodity prices, and unemployment among other factors.
Even though the global financial meltdown affected almost all parts of the world, the United States economy was hit hard more so on the backdrop of a weak dollar as compared to other major international currencies such as the Sterling Pound. The housing sector in the United States of America was not immune to the global financial recession and this was evident in numerous ways. (Baum, 2012)
Firstly, due to the weakening of the dollar against other major international currencies, foreigners had an upper-hand with regard to purchasing homes and other properties within the United States of America. For instance, many investors from the People’s Republic of China scrambled for the numerous real estate properties that were available in different parts of the country. This trend rendered most prospective American homeowners homeless; this is also a factor that has contributed immensely towards the decline in home ownership rates throughout the United States of America.
In line with the 2008/2009 financial recession, it is also of paramount importance to highlight the fact that the inflation of commodity prices resulted into an unprecedented increase in the price of construction materials. As mentioned earlier in the research paper, the high cost of buying homes in the United States of America is closely associated with the fact that the price of basic construction materials is considerably high as compared to the situation in other parts of the world more so within the European Union.
This is also a major factor that contributed immensely towards the economic bubble in the housing sector in that the prices of houses and other kinds of property have tremendously escalated. From another perspective, the 2008/2009 global financial meltdown also resulted into extensive prospecting and speculation within the United States’ housing sector. (Newell, 2011)
As a result of the speculation and/or prospecting, most individuals were wary of additional increase in the price of homes and as such, they rushed to make purchases at unrealistic prices. Even though the federal government (Bush Administration) established a contingency framework for rescuing the housing sector from the economic turmoil, there was little it could do to avert the global financial recession.
Reduced Interest Rates for Mortgage Loans
As highlighted earlier in the research paper, buying homes in the United States of America is characterized by the fact that the country’s mortgage sector mainly uses a uniform and/or standardized interest rate for mortgage loans. During the year 2006 and the first few months of the year 2007, the Federal Reserve of the United States of America reduced the basic interest rate for mortgage loans. (Acton, 2011)
This was an attempt by the Bush Administration to encourage more Americans to buy homes throughout the country and thus contribute towards the enhancement of home ownership rates. However, this was not a very shrewd approach from an economic point of view since it resulted into the unprecedented increase in the applications for mortgage loans in almost all the states. For instance, more than half a million individuals submitted applications for mortgage loans in the State of Oregon in a record two months. Tremendous issuance of mortgage loans was also evident in Texas, New Jersey and Washington. (Newell, 2011)
The extensive issuance of mortgage loans resulted into the inflation of the prices of homes way above their true value. Coupled with the infiltration of buyers from the Far-East and Europe, this approach contributed immensely towards the economic bubble in the United States housing sector. By the time the government was establishing measures to increase the mortgage interest rates the economic crisis in the country’s housing sector was already at an advanced stage. From an international perspective, the situation is completely different in other countries; in the wake of the global financial recession, most governments in Europe established concrete measures in order to arrest the inflation of prices. (Baum, 2012)
Consequently, they increased the average interest rates for mortgages in order to avert extensive borrowing. This approach has contributed immensely towards the stabilization of home prices not only within the European Union but also other countries in the industrialized world such as Australia, Japan and Canada. When the interest rates for mortgage loans are relatively high, borrowers apply for loans in accordance with their respective earnings.
Pursuit for home ownership
Apart from the various economic perspectives such as the global financial recession and reduced interest rates for mortgages, another major factor that has directly contributed to the housing bubble in the United States of America pertains to the extensive pursuit for home ownership. Throughout the United States of America, there is a predominant perception within the society that home ownership is one of the ultimate signs of a comfortable life. (Acton, 2011)
A recent national survey by renowned American research firm, Gallup, indicates that the though of owning a home occupies the minds of most Americans more than any other issue. In line with this kind of perception, most people in the United States of America work extremely hard in order to boost their chances of owning a home at some point in life.
This has resulted into most people sacrificing issues such as health insurance or even higher education in order to save money for purchasing a home. Most analysts refer to this trend as a ‘maniac’ for owning homes in the United States of America. As a direct consequence of this trend, most Americans apply for huge mortgage loans in order to fulfil the lifetime dream of owning a home. As much as this kind of passion is laudable, it has been one of the main factors behind the economic bubble within the housing sector in the United States of America. This is mainly due to the fact that most Americans are ready to purchase homes even at unreasonable prices. (Baum, 2012)
This trend has also resulted into the escalation of mortgage fraud in the American housing industry. Mortgage fraud is directly associated with real estate moguls and even powerful politicians who seek to exploit the Americans’ maniac for owning homes in order to gain financially. Despite the fact that the federal government has established measures that are aimed at mitigating the extensive rates of mortgage fraud within the American housing sector, loopholes are still evident.
For instance, federal and state authorities have provided the American private housing sector with tremendous autonomy; as such, the environment for mortgage fraud has been conducive. Several factors have been closely associated with the maniac for houses among Americans; firstly, the media has perpetrated extensive publicity with regard to the importance of home ownership. (Newell, 2011)
This is clearly evident within the television industry which is characterized by numerous shows that are aimed at publicising the significance and/or importance of investing in the real estate industry. In addition to the television shows, it is also of paramount importance to highlight the fact that there are numerous authors in the country who have released different publications with the main emphasis being placed upon investments in the real-estate industry. The media has also portrayed real estate moguls like Donald Trump as enviable role models within the American society.
In addition to the extensive publicity from the media, another important factor that has contributed towards the escalation of home ownership maniac in the United States of America pertains to the widespread belief that buying a home is one of the most beneficial investments from an economic point of view. Most Americans buy homes in the hope that the prices will increase in the future and therefore sell the property at an excellent profit. (Baum, 2012)
Implications Of The Housing Bubble
Having critically examined the different perspectives as pertains to the causes of the housing bubble in the United States of America, it is of paramount importance to examine some of the major implications it brings about. Even though the housing bubble has strongly affected the buying trends for homes, it has also contributed negatively towards the American economy.
As mentioned earlier, the housing bubble has resulted into the entry of numerous foreigners within the American housing sector. Consequently, this has rendered most natives homeless and thus they continue to rent houses. The extensive foreign influence in the American housing industry has been brought about by the weakening of the United States’ dollar as compared to other major world currencies. (Acton, 2011)
The housing bubble has also negatively influenced the country’s mortgage sector; this is due to the fact that most individuals have borrowed huge loans which they cannot manage to service with their meagre earnings. It is also extremely essential to highlight the fact that the American housing bubble has resulted in the reduction of home ownership rates in the country. As mentioned in the initial stages of the research paper, the current ownership rates in the United States of America stands at approximately 67%; this is quite low as compared to the impressive home ownership rates in countries such as Italy and Ireland.
During the past decade, the home ownership rates in the United States of America have been characterized by extensive declines; this trend has also been closely associated with the housing bubble. From a different perspective, the housing bubble has also been a major causative factor for the huge discrepancies in home ownership across different regions and/or states in the USA. (Acton, 2011)
Whereas the Mid-western regions are characterized by high home ownership rates of more than 70%, the rates for home ownership in the eastern states such as New York are extremely low. Even though these kinds of discrepancies have been strongly influenced by variations in state regulatory frameworks, the housing bubble has also been a major causative factor.
Summary Of Differences Between International And Usa Home Buying
The main goal of this research paper is to provide a comprehensive evaluation of the various differences between international and USA home buying. Even though numerous issues have been critically examined, it is extremely important to provide a detailed summary of the specific differences; these have been documented in this particular section.
Differences associated with financing
Within the housing sector in any given country, finance takes pre-eminence over all other issues. Essentially, transactions would not take place in any given industry without the establishment of a comprehensive financial framework; in line with this, the housing sector is not an exception. During the process of buying homes or any other property that pertains to real estate, there are numerous financial perspectives that must be thoroughly considered not only within the United States of America but also from an international perspective. (Acton, 2011)
To begin with, the prospective home owner must present the relevant finances prior to being licensed to own the property; in the event that he/she does not have sufficient financial resources, assurances pertaining to the payment modalities should be provided. Within the United States housing sector, it is quite hard for property owners to sell homes on instalment basis; this is mainly due to the fact that the default rates for credit in the country are among the highest in the industrialized world.
As a result of this trend, prospective home owners have to seek bank loans or mortgages in order to purchase homes. In very sharp contrast, this trend is not dominant from an international perspective. For instance, within the United Kingdom, most home buyers settle the bills on instalment basis as opposed to making direct payments. The use of instalments as the means of settling payments for real estates is also predominant and/or widespread in most parts of Europe such as Italy and France. (Baum, 2012)
The main reason as to why other countries utilize this approach is that rates for default on credit are quite low. In addition to the high rates of creditworthiness, the governments in countries such as Australia and Japan have established comprehensive mechanisms that are aimed at encouraging the pursuit of home ownership among the citizens. For instance, the Japanese government has an extensive set of financial incentives for all citizens seeking purchase homes within the country.
Mortgage loans for buying homes also present an excellent platform for evaluating the various differences between international and USA home buying. As highlighted earlier in the research paper, the mortgage lending process in the United States of America is quite distinct from the mortgage lending process employed in other industrialized countries as well as in some middle income economies. Whereas the mortgage lending process in the United States of America is characterized by numerous stringent regulations, the situation is completely different from an international perspective. (Acton, 2011)
This is due to the fact that it takes less time to complete the documentation procedures for the mortgage lending process in other countries as compared to the United States of America. In the USA, extensive scrutiny of mortgage loan applicants is done at the county, state and federal levels. In very sharp contrast, lending agencies in other countries such as the United Kingdom and Sweden have streamlined the entire mortgage lending process in order to avert rigidness and wastage of time.
The different approaches towards buying homes in the United States of America and other countries on the international scene is further highlighted by the fact that the USA employs a standard interest rate mechanism for issuance of mortgage loans. From an international perspective, most countries such as Japan, Australia and France utilize a flexible interest rate system during the issuance of mortgage loans. It is also of paramount importance to highlight the fact that financing for real-estates is strongly regulated by most governments in most countries such as China and Italy; this is an approach that has contributed immensely towards enhancing the stability of the housing sector.
On the contrary, this is not the case in the United States of America whereby financial perspectives are strongly influenced by the various stakeholders in the market. The rates of foreclosures within the housing sector in the United States of America are quite high as compared to the trends that are evident not only in industrialized countries but also middle income economies. For instance, high rates of foreclosures were reported throughout the United States of America in the wake of the 2008/2009 financial recession; however, this was not the case in the housing sectors of other countries more so within the industrialized world. (Newell, 2011)
The credit rating process for mortgage loans in the United States of America is characterized by numerous regulatory mechanisms such as evaluation of the applicant’s financial history; however, the credit rating process for mortgage loans in the international scene is relatively flexible. It is also of paramount importance to highlight the fact that the collateral or security required in order to secure mortgage loans in the United States of America is mainly based on the inherent value of the applicant’s assets.
This is an approach that has made it extremely difficult for prospective home owners in the country to access mortgage. From an international perspective, the situation is quite different; this is brought about by the fact that the most lending agencies within the industrialized world are consider assurances from the government as sufficient collateral for issuance of mortgage loans. All these perspectives clearly highlight the various financial aspects that present the differences between international and USA home buying.
Differences associated with influx of foreigners
One of the main factors that contributed towards the economic bubble in the United Stateshousing sector pertains to the huge influx of foreigners. Mainly drawn from the Far-East, foreign investors capitalized on the weakening of the United States’ dollar by purchasing homes across the country. The infiltration of foreigners into the United States’ housing sector is a far-cry from the situation in most other countries within the industrialized world. (Baum, 2012)
For instance, more than 95% of home owners in the United Kingdom are local people; such rates of home ownership are also evident in other countries such as Japan, China, Italy, France and India. The governments in these countries provide the citizens with excellent incentives that encourage home ownership. With this kind of approach, it is quite difficult for foreigners to dominate the housing sector in these countries.
Differences associated with the home search process
The home search process in the United States of America is strongly influenced by agents; on the other hand, the home search process in most countries in the international scene is more or less centralized in order to enhance the efficiency and/or flexibility of the home buying process. (Ferguson, 2008)
The increased influence of agents in the home search process in the United States of America has provided an enabling environment for the escalation of mortgage fraud. The stringent home search process was also an influential factor behind the housing bubble in the United States of America.
Paying Mortgages; United States And International Perspectives
The average payment period for a mortgage loan in the United States of America ranges from 20 to 30 years; on the other hand, international averages range from 5 to 10 years. It is therefore extremely essential to critically examine some of the main reasons that have triggered this kind of discrepancy. As already mentioned earlier in the research paper, the United States of America has one of the highest rates of credit default among the industrialized nations. This has served as a major stumbling block for mortgage lending agencies in the country as they seek payments from clients. (Baum, 2012)
Apart from the high rates of credit default, another factor that has contributed immensely towards the huge discrepancies in the average repayment period for mortgage loans pertains to the interest rate. Within the United States of America, a uniform interest rate is used by all mortgage lending agencies both within the private and public sector. With this kind of standardization, the borrowers are not pressurized to pay the loans quickly. In very sharp contrast most countries in the international scene utilize a unique interest rate scheme which is characterized by high rates of variations.
As such, the borrowers are compelled to repay the mortgage loans as soon as the get the cash. In addition to the interest rates, it is also crucial to highlight the fact that the government’s regulatory framework plays an instrumental role towards determining the rates of payments. With extensive government input and/or influence, borrowers are less likely to default on payments as opposed to a scenario whereby the government’s influence is minimal. (Acton, 2011)
Conclusion
The main goal of this research paper was to identify the difference between buying homes in the United States of America and other countries from an international perspective. In line with this topic, some of the specific areas that have been addressed include the real estate approach, home search process, interest rate and credit rating processes among other aspects.
During the process of buying homes or any other property that pertains to real estate, there are numerous financial perspectives that must be thoroughly considered not only within the United States of America but also from an international perspective. For instance, the prospective home owner must present the relevant finances prior to being licensed to own the property; in the event that he/she does not have sufficient financial resources, assurances pertaining to the payment modalities should be provided. It is also of paramount importance to highlight the fact that financing for real-estates is strongly regulated by most governments in most countries such as China and Italy; this is an approach that has contributed immensely towards enhancing the stability of the housing sector. All these issues provide a comprehensive explanation of the differences that characterize home buying in the United States of America and other countries.
Annotated Bibliography
Baum & Hartzell (2012)
The authors of this publication have critically examined the various issues that pertain to the trends in property investment not only in the United States of America but also other parts of the world. The publication has provided important information and/or data concerning the current home ownership rates in different parts of the world more among the industrialized and middle-income economies.
Newell & Sieracki (2011)
As with the first publication, the authors of this source have also comprehensively examined the past, current and future trends in the property markets and/or industries in different parts of the world. Special emphasis has been made upon the real estate sector; in line with this, the authors have critically examined the main issues that have caused discrepancies between buying property in the United States of America and other parts of the world.
Acton (2011)
The author has sought to establish the most critical factors that have affected and/or influenced housing and other types of real estate properties around the world. Some of the critical issues that have been addressed by the author include the economic bubble within the United States’ housing sector and the declining rates of home ownership in the country.
Ferguson (2008)
This serves as the fourth major source for the paper; the author has addressed numerous issues as pertains to investment and finance in different parts of the world. The publication has also addressed the various trends that characterize the housing sector not only in the United States of America but also other countries on the international scene.
References
Acton, Q. A. (2011). Issues in housing and real estate, Atlanta: Scholarly Editions
Baum, A. & Hartzell, D. (2012). Global property investment, Hoboken: John Wiley & Sons
Ferguson, N. (2008). The ascent of money: A financial history of the world, NY:Penguin Book Group
Newell, G. & Sieracki, K. (2011). Global trends in real estate finance, West Sussex: Wiley-Blackwell
