As it can be seen from our everyday life, the real estate is one of the most rapidly developing markets. Looking from a broad historical perspective, Niall Ferguson devotes the chapter “Save as Houses” to the observation of the real estate concept transformation, describes the place of the real estate market in the economic systems of the Western democracies and traces the corresponding prerequisites of the world financial crisis.
Since the time immemorial, the desire of owning a stable home has been the inalienable part of the human as the social animal. However, for the huge historical period the aristocrats had the privilege to own residential property. It was not until the mid of the 19th century when the positions of big landlords were shaken by the government actions aimed to establish control over the immense territories. In Great Britain, the palace of Duke of Buckingham was sold at the auction in 1848; that was “the harbinger of a new, democratic age” (Ferguson, 2008, p. 240). The people could receive the right to vote if they rented a house, not only owned.
The concept of property-owning as a democratic value emerged and crystallized in America. There were not too many mortgages issued before the 30s of the XX century; in the peak of and after the Great Depression most of them were foreclosed. The Roosevelt’s administration made significant reforms by creating low-cost homes, long-term mortgages and specialized institutions, such as Home Owner’s Loan Corporation, Federal Home Loan Bank, Federal Housing Administration. The Federal National Mortgage Association was established in 1938 and introduced the secondary realty market. However, there also existed some problems such as discrimination of the black people, who were named uncreditworthy up to the end of the 60-s.
The author also notes that there was always a place for fraud in a democratic and deregulated real estate world. The most notorious examples were found among the Savings & Loan Associations, which were free to invest not only in long-term mortgages but to more risky ones as well. S&Ls were very popular in the 80s, but when it was revealed in 1991 that Danny Faulkner’s association was successfully earning money on nonexistent objects in Texas, S&Ls were diminished. However, the idea to issue risky subprime mortgages at extremely high-interest rates was revived when it became possible to convert mortgages into bonds. The activities of such investment banks as Salomon Brothers and Meryl Lynch are the brightest examples of how issuing such mortgages to subjects with dubious creditworthiness could lead to the global financial crisis of 2008.
At the end of the chapter, we can also find the author’s opinion of how it would be possible to develop the real estate market in the Latin America. He refers to the research of the famous Peruvian economist Hernando De Soto. There are plenty of properties in the Latin America, but people cannot make much use of them because of too sophisticated bureaucratic procedures. The latter should be reduced, and the system of property right should be established so that people could earn money and increase the countries’ GDP.
Overall, the author considers the houses may not be the safest types of investment. In some ways, stocks might be better, more liquid, but at the same time sell unstable. The only truth is that to ensure financial security one should have “a properly diversified portfolio of assets” (Ferguson, 2008, p. 282).
References
Ferguson, N. (2008). The ascent of money: A financial history of the world. New York, NY: The Penguin Press.