Real estate bubble
Introduction
Real estate bubble is known as the advance, in most Western industrialized countries, of real estate prices well above those of other goods and services, materialized in two waves or impulses during the two decades that go from the mid-1980s to the middle of the first decade of the century, with the consequent generational fracture that this generates by involving a basic obligatory consumption good such as housing.
Bubble Description
The Reports of the American Federal Reserve (FED)[1] and other official economic organizations, such as the OECD,[2] reflect the explosive increase in the price of real estate, in practically all industrialized countries, concentrated in two periods: until 1989 and until 2006.
Germany and Japan present differences, in the first case, due to the costs of the so-called German Reunification, and, in the second, due to the prompt bursting of the bubble after an extraordinarily exaggerated initial rise (see: Financial and real estate bubble in Japan).
The specialized media[3] and other relevant figures in the economic world[4] reported on the bubble, late and without excessive frankness, due to the short-term credits it provided, which, in the end, has contributed to unnecessarily amplifying the disastrous result.
The main affected countries have been Denmark, Australia, Belgium, France, Greece, Ireland, Italy, Holland, Norway, Spain, Portugal, Sweden, South Africa, New Zealand, Great Britain and the United States, among others, each with different intensity and specialties.
Origin of the bubble
The real estate bubble starts within the real estate market itself, first, for reasons that are not only economic, being fed upwards, and later, by the abundant mortgage credit favored by expansive monetary policies. The final maturation of the real estate bubble begins after the bursting of the bubble, at the end of the 1990s, and the subsequent lowering of interest rates agreed to combat its recessionary effects; monetary laxity intensified after the attacks of September 11, 2001 and the Iraq War, on the one hand, and, on the other, the culmination of the European monetary unification process.
Another important factor was the expansion of the collateralized debt obligation (CDO) market, which greatly encouraged the granting of mortgages to poorly qualified borrowers with a high risk of default. It can be seen that the structure of said derivative financial products altered noticeably between 2000 and 2006, predominating at the end of the period among assets that backed financial assets such as CDOs, low-rated mortgages (and high risk of default). The rating agencies assigned good ratings (triple A or AAA) and low risk of default to these financial products, for example Standard & Poor's estimated the probability of default of several CDOs in the following 5 years to their rating at only 0.12% (1 in 850),[5] although later S&P's internal rating data revealed that this probability had been 28% (about two hundred times higher).[6] Bankruptcies of financial entities due to The fault of the CDO problems triggered the economic crisis of 2008-2015, which would have a different impact in various regions, but which would noticeably affect high-income countries.