Dec 13 2011
04:57 pm
By: CE Petro  shortURL

I was reading an interesting story that surmises house flippers were a bigger part of causing the housing bubble than originally thought. Granted, the title states that house flippers were more involved in the housing bubble bursting, but do read on past the title.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an "undocumented" dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

There were, across the nation hundreds of people jumping on the "flip this house" bandwagon. And then the bubble burst.

Investors defaulted in large numbers after home values began to drop in 2006. They accounted for more than 25 percent of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada from 2007 to 2009.

Why were so many people able to jump onto the Flip the House bandwagon?

Paul Bell, president of the [Greater Las Vegas Association of Realtors]real estate association, said amateur investors were behind the soaring home values seen during the first half of the last decade, but noted those buyers were simply taking advantage of how easy it was to buy homes at the time because of questionable lending practices and government pressure on banks to promote home ownership.

The only problem I have with Bell's answer is the pressure from the government to promote homeownership. That's been going on for decades before the bubble. In fact, promoting homeownership by the government has been going on since the Great Depression. We need to look past that government promotion to the questionable lending practices part.


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