Real estate investors, the leverage cycle, and the housing market crisis
Donghoon Lee (),
Joseph Tracy () and
Wilbert van der Klaauw ()
No 514, Staff Reports from Federal Reserve Bank of New York
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.
Keywords: Mortgages; Real estate investment; Financial leverage (search for similar items in EconPapers)
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