NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Eugene N. White

NBER Working Paper No. 15573
Issued in December 2009
NBER Program(s):   DAE

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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Document Object Identifier (DOI): 10.3386/w15573

Published: 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

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