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The Burst of the Real Estate Bubble – More Than a Trigger for the Financial Market Crisis

  • Ewald Walterskirchen

    (WIFO)

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    The burst of the real estate bubble in the USA was a key factor of the financial market crisis. For banks, a slump in real estate prices is more dangerous than a stock market crash since real estate is the most important collateral for bank loans and house ownership is much more widespread across the population than stock market assets. Historical experience shows that there is a close connection between a slump in real estate values and a financial market crisis: as a rule, the former precedes the latter by one year. An important role of monetary and even more of fiscal policy is to prevent at an early stage price bubbles from emerging on real estate markets.

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    File URL: http://www.wifo.ac.at/wwa/pubid/39074
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    Article provided by WIFO in its journal Quarterly.

    Volume (Year): 15 (2010)
    Issue (Month): 1 (April)
    Pages: 86-93

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    Handle: RePEc:wfo:wquart:y:2010:i:1:p:86-93
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    1. Ewald Walterskirchen, 2006. "The Effect of House Prices on Growth," Austrian Economic Quarterly, WIFO, vol. 11(4), pages 173-179, December.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
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