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Flipper’s Role in Housing Bubble Exposed

A new federal report shows that house flippers – investors who bought properties in the housing boom, did them up, then sold them on for a quick profit – bear more responsibility for the housing bubble than we first thought, according to a report in the Associated Press.

The Federal Reserve Bank of New York noted in its report that up until now, the impact that speculation by real estate investors had on the housing crisis has been largely overlooked by those looking at what went wrong.

House flippers need to take a portion of the blame for housing bubble, claims report. © Scott Maxwell - Fotolia.com

According to the report, speculators caused property prices in some areas to be artificially inflated through their use of subprime credit and low down payments while snapping up multiple properties at the same time. Researchers claim that these practices meant that millions of people had to pay excessive prices in order to buy a home for themselves and their families.

House flippers commanded a large share of the market before the housing bubble burst, say Associated Press. The report notes that over a third of all mortgages in 2006 were owned by people with more than one home to their name. Moreover, this figure rises to nearly 50% in states such as Florida, California, Arizona and Nevada, which suffered more than most when real estate markets collapsed.

As the housing boom went bust in 2006, a huge number of investors were unable to pay off the loans they had taken out, accounting for around 25% of all delinquent mortgages. In foreclosure hot-spots such as California and Florida, the number was higher again, with investors totaling around a third of all mortgage delinquencies.

In response to the findings, regulators and lenders are being urged to ensure that future speculative borrowing is limited, so that a future economic downturn can be avoided, reported the Associated Press.

Mike Wheatley

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

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