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Securitizations in the 1920's

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  • William Goetzmann
  • Frank Newman

Abstract

This paper quantifies the scale and scope of the commercial real estate mortgage bond market in the period surrounding the 1920s in an attempt to better understand the role of retail mortgage debt in early urban development. In particular, this paper quantifies the size of the market, identifies risk factors affecting the coupon yield spread over Treasuries and utilizes a unique data set to construct a commercial mortgage price index over the period 1926-1935. A substantial retail appetite for real estate securities during this period may have significantly contributed to a real construction boom, but overly optimistic speculation in these securities may have led to overbuilding. The rapid deterioration of these securities and a near complete drop in issuance show, ex post, that investors were overconfident in building fundamentals during the boom years. The breakdown in the value of real estate securities as collateral assets preceded the crash of 1929 and may have contributed to the fall of asset prices more generally.

Suggested Citation

  • William Goetzmann & Frank Newman, 2010. "Securitizations in the 1920's," Yale School of Management Working Papers amz2668, Yale School of Management.
    • Handle: RePEc:ysm:wpaper:amz2668
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    File URL: https://repec.som.yale.edu/icfpub/publications/2668.pdf
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    References listed on IDEAS

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    1. Eugene N. White, 2014. "Lessons from the Great American Real Estate Boom and Bust of the 1920s," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 115-158, National Bureau of Economic Research, Inc.
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    3. David C. Wheelock, 2008. "Government response to home mortgage distress: lessons from the Great Depression," Working Papers 2008-038, Federal Reserve Bank of St. Louis.
    4. Rothberg, James P & Nothaft, Frank E & Gabriel, Stuart A, 1989. "On the Determinants of Yield Spreads between Mortgage Pass-Through and Treasury Securities," The Journal of Real Estate Finance and Economics, Springer, vol. 2(4), pages 301-315, December.
    5. Brian A. Maris & William Segal, 2002. "Analysis of Yield Spreads on Commercial Mortgage-Backed Securities," Journal of Real Estate Research, American Real Estate Society, vol. 23(3), pages 235-252.
    6. William Goetzmann & Liang Peng & Jacqueline Yen, 2012. "The Subprime Crisis and House Price Appreciation," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 36-66, January.
    7. Leo Grebler & David M. Blank & Louis Winnick, 1956. "Capital Formation in Residential Real Estate: Trends and Prospects," NBER Books, National Bureau of Economic Research, Inc, number greb56-1.
    8. Pierre Collin-Dufresn & Robert S. Goldstein & J. Spencer Martin, 2001. "The Determinants of Credit Spread Changes," Journal of Finance, American Finance Association, vol. 56(6), pages 2177-2207, December.
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