Sarasota Real Estate Market News

Investors blamed for bubble in housing

LAS VEGAS – Dec. 13, 2011 – 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-downpayment, 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.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers noted.

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.

As a result, millions of homeowners saw their home values decline so that they were worth less than the original purchase price. Foreclosures skyrocketed. Residential construction also languished, putting hundreds of construction workers in the hardest-hit states out of work.

In Nevada, which has the highest foreclosure rate in the United States, the housing market remains weak. Paul Bell of the Greater Las Vegas Association of Realtors said the market has shifted so that cash investors are helping Las Vegas recover by buying multiple vacant homes, fixing them up and selling them. “If we did not have the serious investors in the market . . . we would have many neighborhoods in a very run-down condition,” he said.
AP Logo Copyright © 2011 The Associated Press, Cristina Silva.

December 28, 2011 - Posted by | News related to Short Sales and Foreclosures, News related to the Market

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