Dollars & Sense: The Great Real Estate Bubble of the 1920s

[marmar]

The Great Real Estate Bubble of the 1920s
by Polly Cleveland


Economists conventionally attribute the Great Depression to blunders by the then-new Federal Reserve Bank. According to this story, promoted by Milton Friedman and the Chicago School, after the stock market crash of 1929, the Fed kept interest rates too high, strangling the economy. This story made most economists confident that it couldn't happen again.

But there's a different story: the story of the giant 1920's real estate bubble. It began with cars.

Starting in 1899, the auto industry took off exponentially, dipped for two years during World War I, then took off exponentially again during the 1920's. Production reached a peak of over 4 million vehicles in 1929, before collapsing. It did not again pass 4 million until 1949!

The auto suddenly opened up vast suburban and rural areas to housing. Developers--legitimate and bogus--leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages"--effectively allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "club house" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926 Chicago population increased 35% and land values rose 150%, or about 12% a year. .........(more)

The complete piece is at: http://www.dollarsandsense.org/blog/2009/02/great-real-estate-bubble-of-roaring.html

[jwirr]

1. It was both the banking and developers that worked together in that

bubble - not so different than today.

[hobbit709]

2. History repeats

Over and over.

[ixion]

3. this 'graph sums it up nicely

The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs--panicky depositors withdrawing cash--further crippled the banking system. Between drops in spending and lending, businesses failed, unemployment soared, and prices fell.

Sound familiar?

[HillbillyBob]

4. Blunders? Greed!

When we left SoFla in 2002 we could see the bubble stretching the house we were renting was for sale..when we moved in they wanted 100,000 (we were just reaching the point where we could think about buying) each of 4 years we were there the price went up by 100,000 it was a 2/2 on a corner lot with 3 apts in back.
In spring all at the same time the landlord really wanted to sell, my partner got outsourced 2x in less than 6 months and I went through colon cancer surgery for a second time.
The rest I have related previously. We were pretty sure the whole market would take a dive, we thought it would come a year earlier. This was a big reason we moved away from FLa landed in Asheville, no jobs , then partner got a job in Greensboro NC. We stayed there for 4 years watching the bubble expand, and the bush family crime spree spread in depth and breadth.
In 2004 we were sure that ( * ) would be ousted, he wasn't. So we started looking for a cheap place out of the city. In 07 we found and bought this abandoned farmstead. Almost 9 acres 2 of it yard 7 woods. This year we should be able to raise almost all of what we need to eat.
I am very alarmed at the NAIS National Animal Inventory System, it will cost even little folks like us a bundle for computers , inventory equipment, software, reporting fees and will be about equal to doing long form tax returns every day...

http://www.google.com/url?sa=t&source=web&ct=res&cd=4&url=http%3A%2F%2Fnonais.org%2F&ei=mdSiSdq3G-HAtgfYtMGXDQ&usg=AFQjCNF2wuQ7n9_Xls2m3EhFMuW6f6e4mQ&sig2=iLdiXDkPslr4TzXvOOQ8TQ

http://animalid.aphis.usda.gov/nais/

This claims to be a infectious diseases thing but what it really does is put us out of the farming business, that is gonna cause this Depression to be even worse if we cannot raise our own food. It even wants to register pets. the problem with animal disease is the factory system where animals are packed together. Avian flu has not been found in any free range chickens, or other poultry. Same with Mad Cow, I get my beef from a local farmer who onley grass feeds, no hormones or antibiotics unless the cow is sick and she is segregated from the rest and they are watched closely you cant do that in a factory setting.

[bbgrunt]

6. the NAIS is an absolute abomination. There is

a definite push to make self-sustaining activity illegal or so costly that it becomes impossible. This is all part of a desire to take control of the food supply.

[DemoTex]

5. Thomas Wolfe was very critical of 1920s real estate speculation in "Look Homeward, Angel."

In fact, Wolfe was probably the most critical of his mother, Julia. Julia Wolfe owned a dilapidated boarding house in Asheville (where Thomas grew up), not because she had to, but because she used the boarding house income for real estate speculation. The rampant, unchecked speculation in real estate and where it lead (The Crash) infuriated Thomas Wolfe, and his writing reflected that animosity. Because of it, he was not kind to Asheville and his books were banned at libraries and schools there for a number of years.

[hootinholler]

7. I've often wondered where all the huge victorian houses came from.

I've wondered how people at the time could afford to build them. Kinda like today's McMansions.

-Hoot