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

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  • Ewald Walterskirchen

    (WIFO)

Abstract

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.

Suggested Citation

  • Ewald Walterskirchen, 2010. "The Burst of the Real Estate Bubble – More Than a Trigger for the Financial Market Crisis," Austrian Economic Quarterly, WIFO, vol. 15(1), pages 86-93, April.
    • Handle: RePEc:wfo:wquart:y:2010:i:1:p:86-93
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    References listed on IDEAS

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    1. Edward E. Leamer, 2007. "Housing is the business cycle," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 149-233.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    3. Frederic S. Mishkin, 2007. "Housing and the monetary transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 359-413.
    4. repec:rnp:ecopol:09111 is not listed on IDEAS
    5. Markus Marterbauer & Ewald Walterskirchen, 2005. "Einfluss der Haus- und Wohnungspreise auf das Wirtschaftswachstum," WIFO Monatsberichte (monthly reports), WIFO, vol. 78(11), pages 761-774, November.
    6. Markus Marterbauer & Ewald Walterskirchen, 2005. "Einfluss der Haus- und Wohnungspreise auf Wirtschaftswachstum und Inflation," WIFO Studies, WIFO, number 25691.
    7. Ewald Walterskirchen, 2006. "The Effect of House Prices on Growth," Austrian Economic Quarterly, WIFO, vol. 11(4), pages 173-179, December.
    8. Gunther Tichy, 2009. "Einige unkonventionelle Gedanken zum Leben nach der Krise," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 35(4), pages 501-513.
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    1. Karl Aiginger & Hans Pitlik & Margit Schratzenstaller-Altzinger, 2010. "Options for the Consolidation of Public Budgets in Austria," Austrian Economic Quarterly, WIFO, vol. 15(2), pages 184-197, July.
    2. Josef Baumgartner & Serguei Kaniovski & Hans Pitlik & Margit Schratzenstaller-Altzinger & Thomas Url, 2011. "Exports Drive Growth – Domestic Demand Remains Subdued. Medium-term Projections for the Austrian Economy until 2015," Austrian Economic Quarterly, WIFO, vol. 16(1), pages 21-34, March.

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