Speculators and the housing bubble

Recently, the Idaho Statesman ran a front page article detailing how spectulators contributed to the housing bubble and the record number of short sales and foreclosures that have not only hurt the housing industry but have contributed to the economic downturn in Idaho and across the nation. According to the article, 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.”

My take on this – tell me something I don’t already know. Anyone who worked in the housing sector during the “boom” must have, like me, recognized that the way home prices were increasing due to the number of out-of-state investors was unsustainable and that at some future time, something would have to happen.

I remember the onslaught of investors who called me wanting to buy rental properties. When I started telling them that buying rentals in the Boise area might not be a good idea due to the number of investors purchasing investment properties (and thus turning them into rental properties), I was accused of not wanting to sell properties to out-of-state investors.(Yes, that’s right, a real estate agent that doesn’t want to earn a commission.) And as it turned out, the rental signs went up, vacancies rates increased, and then the bust because the investors couldn’t find tenants for their rentals or because their monthly mortgage payments were higher than the rents they could collect causing a unsustainable negative cash flow.

That aside, I think the Federal Reserve Bank of New York also needs to point a finger at those who provided those “low-down-payment, subprime” loans to the investors. Yes, we’ve been focused on finding a way to move past the recession and jumpstart the economy including the housing industry. Now that it appears that we’re on the right path to doing that, someone in Washington needs to pay attention to the findings of this report to make sure that this doesn’t happen again.

Posted In Blogroll, Real Estate News

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