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ECON 252: Financial Markets

Lecture 12 - Real Estate Finance and Its Vulnerability to Crisis << previous session | next session >>

Overview:

Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People's demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises.

Reading assignment:

Fabozzi et al. Foundations of Financial Markets and Institutions, chapters 4, 23, 24, and 25

Robert Shiller, Irrational Exuberance, chapter 2

Class lecture:

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Resources:

PowerPoint slides from screen - Lecture 12 [PDF]

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