Freddie Mac Analysis Shows Big Foreign House Price Run Up and Fall Too, but Not In Germany.

Freddie Mac Chief Economist blog post is HERE.  His explanation of lack of run up in Germany also points out that Germany was not totally immune to financial strain in other countries.

First, the hurdles to homeownership are higher in Germany. While long-term prepayable mortgages with down payments of 20 percent or less are standard in the U.S., they are virtually unknown in Germany. Borrowers there can expect to make 30 to 35 percent down payments on mortgages with terms of 10 years or less, and also agree to stiff pre-payment penalties equal to the interest they would have paid had the loan amortized to full maturity. Second, Germany's mortgage terms also reflect a housing policy that has primarily targeted public support towards middle-class rental housing as opposed to owner-occupied homes. The homeownership rate in Germany is 42 percent versus 67 percent in the U.S. and more than 80 percent in Spain.Third, Germany did have a housing price bubble. But it took place a decade earlier, following re-unification. German home prices rose much faster than incomes as the country merged, and were coming off their peak at the start of the 21st Century. As a result, they are now back in line with neighboring countries.

Even so, Germany wasn't immune from the financial aftershocks that followed when the housing bubble popped in 2007, according to a recent report from the Congressional Budget Office."In some (European) countries, the government bailed out issuers of covered bonds, and in early 2009, the European Central Bank launched a €65 billion ($84.5 billion) program to purchase covered bonds in an effort to restore liquidity to that market," the CBO writes, and "Spain and Germany guaranteed another €300 billion ($390 billion) worth of covered bonds issued by mortgage lenders" to shore up their housing finance systems.

Originally created and posted on the Oregon Housing Blog.