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Lessons from the Great American Real Estate Boom and Bust of the 1920s

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  • Eugene N. White

Abstract

Although long obscured by the Great Depression, the nationwide “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom and bust. Fundamentals, including a post-war construction catch-up, low interest rates and a “Greenspan put,” helped to ignite the boom in the twenties, but alternative monetary policies would have only dampened not eliminated it. Both booms were accompanied by securitization, a reduction in lending standards, and weaker supervision. Yet, the bust in the twenties, which drove up foreclosures, did not induce a collapse of the banking system. The elements absent in the 1920s were federal deposit insurance, the “Too Big To Fail” doctrine, and federal policies to increase mortgages to higher risk homeowners. This comparison suggests that these factors combined to induce increased risk-taking that was crucial to the eruption of the recent and worst financial crisis since the Great Depression.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15573.

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Date of creation: Dec 2009
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Publication status: published as Lessons from the Great American Real Estate Boom and Bust of the 1920s , Eugene N. White. in Housing and Mortgage Markets in Historical Perspective , White, Snowden, and Fishback. 2014
Handle: RePEc:nbr:nberwo:15573

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