Speculative buyers facilitated real estate crash: Fed researchers

December 13, 2011 01:54PM

Real estate speculation was an overlooked but apparently significant factor in the U.S. real estate bust, according to a report by researches with the Federal Reserve Bank of New York cited by the Associated Press.

More than one-third of all U.S. home mortgages initiated in 2006 went to people who already owned at least one home and buyers owning three or more properties were the fastest-growing segment of homeowners between 2000 and 2006. According to the report, many of the new wave of speculators used small down payments and subprime credit to acquire properties.

“This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family,” the researchers said.

The mutliple-home owners began defaulting on the shaky loans as housing prices dropped late in 2006, and buyers with at least three properties accounted for more than a quarter of all seriously delinquent mortgage balances nationwide.

The problem was especially acute in Arizona, California, Florida and Nevada, where average home prices doubled between 2000 and 2006 and investors comprised about half of all mortgage-backed home purchases. As a result, when values began to tumble, speculative purchases were responsible for more than one-third of the states’ delinquent mortgages.

To avoid another bust, lenders must limit loans to speculative buyers, the report said. [AP via HuffPo]