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Real estate investors, the leverage cycle, and the housing market crisis

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Author Info

  • Andrew Haughwout
  • Donghoon Lee
  • Joseph Tracy
  • Wilbert van der Klaauw

Abstract

We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 514.

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Date of creation: 2011
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Handle: RePEc:fip:fednsr:514

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Related research

Keywords: Mortgages ; Financial leverage ; Real estate investment;

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References

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  1. Edward L. Glaeser & Joshua D. Gottlieb & Joseph Gyourko, 2010. "Can Cheap Credit Explain the Housing Boom?," NBER Working Papers 16230, National Bureau of Economic Research, Inc.
  2. Patrick Bayer & Christopher Geissler & James W. Roberts, 2011. "Speculators and Middlemen: The Role of Intermediaries in the Housing Market," NBER Working Papers 16784, National Bureau of Economic Research, Inc.
  3. Edward L. Glaeser & Joseph Gyourko & Albert Saiz, 2008. "Housing Supply and Housing Bubbles," NBER Working Papers 14193, National Bureau of Economic Research, Inc.
  4. John Geanakoplos, 2010. "Solving the present crisis and managing the leverage cycle," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Aug, pages 101-131.
  5. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1211-44, September.
  6. Andrew Haughwout & Richard Peach & Joseph Tracy, 2008. "Juvenile delinquent mortgages: bad credit or bad economy?," Staff Reports, Federal Reserve Bank of New York 341, Federal Reserve Bank of New York.
  7. Charles Himmelberg & Christopher Mayer & Todd Sinai, 2005. "Assessing high house prices: bubbles, fundamentals, and misperceptions," Staff Reports, Federal Reserve Bank of New York 218, Federal Reserve Bank of New York.
  8. Rajashri Chakrabarti & Donghoon Lee & Wilbert van der Klaauw & Basit Zafar, 2011. "Household debt and saving during the 2007 recession," Staff Reports, Federal Reserve Bank of New York 482, Federal Reserve Bank of New York.
  9. Sean D. Campbell & Morris A. Davis & Joshua Gallin & Robert F. Martin, 2006. "A trend and variance decomposition of the rent-price ratio in housing markets," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-29, Board of Governors of the Federal Reserve System (U.S.).
  10. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Donghoon Lee & Wilbert van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports, Federal Reserve Bank of New York 479, Federal Reserve Bank of New York.
  12. Patric H. Hendershott & Joel Slemrod, 1982. "Taxes and the User Cost of Capital for Owner-Occupied Housing," NBER Working Papers 0929, National Bureau of Economic Research, Inc.
  13. John Geanakoplos, 2010. "Solving the Present Crisis and Managing the Leverage Cycle," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1751, Cowles Foundation for Research in Economics, Yale University.
  14. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1715, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. John Geanakoplos & Robert Axtell & J. Doyne Farmer & Peter Howitt & Benjamin Conlee & Jonathan Goldstein & Matthew Hendrey & Nathan M. Palmer & Chun-Yi Yang, 2012. "Getting at Systemic Risk via an Agent-Based Model of the Housing Market," American Economic Review, American Economic Association, American Economic Association, vol. 102(3), pages 53-58, May.
  2. Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2014. "The Vulnerability of Minority Homeowners in the Housing Boom and Bust," Working Papers, Becker Friedman Institute for Research In Economics 2014-006, Becker Friedman Institute for Research In Economics.
  3. Tobias Adrian & Daniel Covitz & Nellie J. Liang, 2013. "Financial stability monitoring," Staff Reports, Federal Reserve Bank of New York 601, Federal Reserve Bank of New York.
  4. Andrea Ferrero, 2012. "House price booms, current account deficits, and low interest rates," Staff Reports, Federal Reserve Bank of New York 541, Federal Reserve Bank of New York.
  5. Andreas Fuster & Paul S. Willen, 2012. "Payment size, negative equity, and mortgage default," Staff Reports, Federal Reserve Bank of New York 582, Federal Reserve Bank of New York.
  6. Neil Bhutta, 2012. "Mortgage debt and household deleveraging: accounting for the decline in mortgage debt using consumer credit record data," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2012-14, Board of Governors of the Federal Reserve System (U.S.).
  7. Robert Hockett, 2013. "Paying Paul and robbing no one: an eminent domain solution for underwater mortgage debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 19(Jun).
  8. Philip Bond & Ronel Elul & Sharon Garyn-Tal & David K. Musto, 2012. "Does junior inherit? Refinancing and the blocking power of second mortgages," Working Papers 13-03, Federal Reserve Bank of Philadelphia.
  9. Jason Bram, 2012. "To buy or not to buy? The changing relationship between Manhattan rents and home prices," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 18(Dec).

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