Similarities Between The 1920s And 2000s

The dual stock market rise and fall and the real estate bubbles of the 1920s and 2000s were very similar. The decade during the 1920s marked the flourishing of modern mass-production, mass-consumption economy, which delivered unprecedented profits to investors while also raising the living standard of the urban middle- and working-class. The 2000s marketed the development of the new e-commerce economy, which delivered high earnings for investors during IPOs of some of the biggest tech companies such as Google and Yahoo. According the US Census, home ownership rates in this country rose rom 47.8% in 1930 to 66.2% to nearly 70%in 2006. (US Census)

While homes were primarily owned by upper class Americans during 20s, the 2000s gave rise to

broader home ownership to middle-to low-income Americans. During both times the environment of a booming economy, low unemployment, favorable tax benefits, low interest rates, access to easy finance and encouragement for government leaders crated frenzy on the market for real property. President George W. Bush believed that every American had the right to own a home and Presidents Warren Harding, Calvin Coolidge and Herbert Hoover also encouraged home ownership and improvement during their campaigns. During both decades as expectations of growth in real estate prices, the persistence of low interest rates further lead to greater investment into real estate. Facilitated by a massive boom in mortgage financing, prices soared to record levels. In New York City alone during the 1920s, the value of real estate rose 80 percent in real terms, with even larger increases for higher-end speculative properties, according to one Harvard Business School study.

Based on the numbers the real estate market collapse during the Great Recession was dramatically worse. The 1920s real estate boom peaked in 1925, and the stock market collapsed four years later. During the 2000s, the stock market peaked in 2000 and the real estate bubble burst five to six years later. The 1920s bubble only inflated 50% while the 2000s real estate bubble inflated 135%. The U.S. real estate bubble bottomed about six years after the peak; the Great Depression bust ended in 1933, about eight years after. The peak-to-trough decline in the ’20s was 30%, while the decline in the ’00s was 33%. Real estate prices didn’t reach their 1925 levels until 1944, almost 20 years later. The duration of the trough for real estate crisis is still ongoing with a magnitude of -16.6 percentage decline in price.