The Complete History Of US Real Estate Bubbles Since 1800

philip anderson US public land sales

Photo: Philip J. Anderson

The most recent economic crash should come as no surprise to history buffs.Reader and financial blogger Philip J. Anderson sent us an illuminating analysis of real estate bubbles through U.S. history.

“For the first 144 years of real estate enclosure in the U.S., land sales and/or real estate construction peaked almost consistently, every 18 years,” Anderson writes. “The world’s worst downturns are always preceded by land speculation (the chasing of the economic rent) fuelled by misguided credit creation courtesy of the banks.”

First, the big picture: The U.S. federal government began selling off land in the year 1800. Since then, there have been peaks and valleys of land sales and speculation roughly every 18 years.

Rewind to the first major boom-and-bust, in 1837. The stock market peaked just prior to the bust, a trend we recognise in our own era.

As a result, banks hoarded gold, silver and cash for years afterwards:

Bank lending picked back up after the 1849 gold rush, putting credit back into expansion mode:

By the 1850s, another boom-and-bust cycle had begun. It took the American Civil War to pull the economy out of its dive:

Check out the spike in interests rates in 1857, and their uncharacteristically low level in the following years:

Once again, banks hoarded their assets and rebuilt their base with gold and silver:

In 1873, another crisis (predicted once again by falling stocks prices) resulted in four long years of turmoil before hitting rock bottom. Interest rates stayed below average during that time.

And again in 1893, with little recovery seen until five years later:

Accordingly, interest rates remained low for the rest of the 1890s:

The most memorable crash came in 1929, resulting in the Great Depression. Bank lending, and the land prices that served as collateral, fell throughout the 1930s.

It wasn't until the 1950s, after World War II had ended, that the economy and the real estate cycle was able to reset. The stock market low of 1974 was the next biggest crash since that time.

The next real estate cycle was 1974 to 1992, with the second half of the cycle being buoyed by credit creation and real estate collateral:

The stock market lows of 1991 turned into all time highs in 1992, and interest rates remained low until 1994:

And the trend continues: Here is the same chart, as of September 16th, 2011. Historical repeats of note include the retracement by half of the entire up move after the bust, the strong recovery of the index once the Federal Reserve got involved and new all time highs in the Dow.

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