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.
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 as people couldn’t or refused to pay their underwater mortgages. Residential construction also languished, putting hundreds of construction workers in the hardest-hit states out of work.Here in Idaho, there were realtors renting buses to take California investors around, some of whom were buying 30-40 houses purely on speculation that they would continue to rise in value--not even trying to rent them out. It was very short-term thinking, with disastrous results for everyone. So why were they doing it? As the article points out, quoting from the head of the Las Vegas real estate trade group:
Paul Bell, president of the 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.
“There was blame to go around for everybody,” Bell said.