Why do real estate bubbles hurt more than other bubbles?

I came across an article in the First Tuesday Journal, posted by Jeffery Marino, May 30, 2014, that I thought would be worth sharing. The author quotes two thinkers on the economics of bubble-and-bust episodes; Atif Mian, Economics Professor at Princeton and Amir Sufi, Finance Professor at the University of Chicago.

This blog title’s question is best illustrated by the comparison between the burst of the tech bubble of 2000 and the real estate bubble of 2007-2009. Why is it, the authors’ ask, that the tech bubble that burst in 2000 wreaked relatively little havoc on our economy while the housing bubble sparked a decade(s) long depression?

The answer, according to Mian and Sufi, has to do with  the distribution of losses. The tech crash only affected those holding large amounts of tech stocks. Thus the losses resulting from the downturn were distributed almost exclusively among the wealthy — those who are sufficiently insulated against such financial blows. Losses from the housing crash, on the other hand, were distributed across every income bracket, with the majority of the losses being concentrated among the poor.

Make sense—doesn’t it? The chart below says it all:

Chart courtesy FiveThirtyEight Economics

As the duo’s research shows, excessive household debt leads to foreclosures, causing individuals to spend less and save more. Less spending means less demand for goods, followed by declines in production and huge job losses. A majority of Californians and Americans are vulnerable to the shock of a housing crash, and through them, our entire economic system.