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Thread: House flippers triggered the US housing market crash

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    Cat-tastic Babba's Avatar
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    House flippers triggered the US housing market crash

    It was NOT subprime borrowers. Blaming the poor was always stupid and tinged with racism.

    Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.

    Analyzing a huge data set of anonymous credit scores from Equifax, a credit reporting bureau, the economistsStefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.
    Recent research—particularly that by Antoinette Schoar, a finance professor at MIT Sloan—has been helping rewrite the received wisdom of the “subprime crisis” that has blamed the crisis on poor, reckless borrowers for the better part of a decade. Shoar’s work reveals that borrowing and defaults had risen proportionally across income levels and credit score, but that those with sounder credit ratings drove the rise in delinquencies. This new paper’s investigation into the habits of middle- and upper-income real estate speculators in the run-up to the crisis marks yet another chapter of the history books in desperate need of revision.
    House flippers triggered the US housing market crash, not poor subprime borrowers

  2. #2
    Veteran Member Dr Sampson Simpson's Avatar
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    I hate those shows and the idea of constantly flipping houses. All it does it jack up prices. Houses can't grow the way they are forever, nobody will be able to afford a house.

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    Veteran Member bajisima's Avatar
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    What worries me now that we are helping our daughter look for a home is we are seeing the same thing again. Most starter/moderate range homes have bidding wars and investors with cash end up buying them, putting a small amount of cosmetic work into them and then selling them again for a way higher price a month or two later. She put a bid in for a decent home that had older wood floors and dated wallpaper figuring she would fix it up over time. She was outbid by an investor. Two months later that same house went up for sale again so we went to the open house. The guy basically painted over the wallpaper and put Pergo flooring down. He was offering over 150k more for it. It already had multiple bids when we were there. Its crazy and it was a massive ripoff. I feel for those who will buy it as it was well above the appraisal rate, but with so low of inventory people jump at it. Then there are all those McMansions from a decade ago, who is going to want all those??? I see serious default there as well.
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    Cat-tastic Babba's Avatar
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    Well, since Congress hasn't really addressed the causes of the housing crash it's bound to bite us in the ass again.
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    Veteran Member bajisima's Avatar
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    Quote Originally Posted by Babba View Post
    Well, since Congress hasn't really addressed the causes of the housing crash it's bound to bite us in the ass again.
    Of course. But we have bigger structural problems that aren't being addressed either. New generation rising that isn't interested in the sprawling suburban manse. Tiny house type phenomenon, community living making a comeback in some areas. Have to think we are going to see a bunch of suburban homes coming on the market in the next decade and few buyers. Unless the coasts flood who is going to live in these areas?
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    Quote Originally Posted by Dr Sampson Simpson View Post
    I hate those shows and the idea of constantly flipping houses. All it does it jack up prices. Houses can't grow the way they are forever, nobody will be able to afford a house.
    It's been going on for decades in California, and created the conditions leading to our crazy property tax system.

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    I had always thought that.

    Now, there were many people who purchased homes, who simply were not up to the responsibility.

    BUT, those homes were seldom more than median value, AND....in VERY few cases, would they go DOWN in value (except for the CRASH)

    The "Flippers," however, were a primary driving force in pushing costs HIGHER, while, at the same time, making the housing market artificially over active.

    Example:

    --When a person can't make payments on a $150,000 home, worth, roughly 165,000, and THEY default....the Bank still has a property worth $165,000.00 The time to sell it, may drop the price, but, in the end, they can typically come out on top (That is, until the crash, which drove sales prices super low....)

    --When a person, who flipped a $250,000.00 home, worth $200,000, but, hoping to get $300,000.00 can't sell it for what he or she invested.....
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    Veteran Member Panzareta's Avatar
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    Quote Originally Posted by bajisima View Post
    What worries me now that we are helping our daughter look for a home is we are seeing the same thing again. Most starter/moderate range homes have bidding wars and investors with cash end up buying them, putting a small amount of cosmetic work into them and then selling them again for a way higher price a month or two later. She put a bid in for a decent home that had older wood floors and dated wallpaper figuring she would fix it up over time. She was outbid by an investor. Two months later that same house went up for sale again so we went to the open house. The guy basically painted over the wallpaper and put Pergo flooring down. He was offering over 150k more for it. It already had multiple bids when we were there. Its crazy and it was a massive ripoff. I feel for those who will buy it as it was well above the appraisal rate, but with so low of inventory people jump at it. Then there are all those McMansions from a decade ago, who is going to want all those??? I see serious default there as well.
    As soon as I saw the advent of flipping shows again I said here we go again. Now two down the street are in the process of being flipped. Not to mention five others in the four blocks of this subdivision that were already flipped this year. All starter homes.
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    Quote Originally Posted by Panzareta View Post
    As soon as I saw the advent of flipping shows again I said here we go again. Now two down the street are in the process of being flipped. Not to mention five others in the four blocks of this subdivision that were already flipped this year. All starter homes.
    And lenders are back to encouraging homeowners to use their homes as ATMs.
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    Inside Your Heads syrenn's Avatar
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    Quote Originally Posted by Babba View Post
    It was NOT subprime borrowers. Blaming the poor was always stupid and tinged with racism.





    House flippers triggered the US housing market crash, not poor subprime borrowers
    in my opinion.... bottom line it is still on the borrower. Its no different then borrowing money for a car... cant make the payments and your car gets repossessed.
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