Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis - Federal Reserve Bank of New York

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Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis

2014 September 2011 Number 514

JEL classification: G21, D18, R31

Authors: Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw

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.

Available only in PDF pdf

52 pages / 368 kb

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