Wednesday, September 12, 2007

Flippers Fueled Foreclosure Crisis

If you've read many of my posts, you know I hold a certain disdain for flipping. Not flippers per se . . . Its just that the flipping phenomenon is rife with risk for marginal gain. Holding real estate for investment and the plethora of tax advantages is far smarter, and far more lucrative. So some news that came out a couple weeks ago had my blood boiling again . . .

The Mortgage Bankers Association's chief economist, Doug Duncan, said in a speech that flippers and other speculators in single-family homes helped drive up price in many hot housing markets during the boom. As a result, they contributed heavily to mortgage delinquencies in several of those markets. reported on this speech recently.

Said Duncan, "Defaults are on the rise in most parts of the country, but . . . it is not always the case of a homeowner losing his or her home." Often it is "the case of an investor gambling on a continued increase in home values and losing that gamble." For example, the MBA reported that as of June 30, in Nevada, 32 percent of all prime mortgages in default and 24 percent of subprime defaults were on non-owner occupied properties.

"Calfornia, Nevada, Arizona and Florida were among the states with the fastest home price appreciation over the last five years. This . . . attracted both speculators and home builders, a volatile combination that led to an over-supply of homes that was beyond the capacity of the local populations to support. When this oversupply became apparent and prices began to fall, many of these investors simply walked away from their mortgages."

Incredible, isn't it?

One thing that we are noticing, as I predicted many months ago, is that the multi-family market is strengthening throughout Central Ohio. Largely because of the credit crunch tied to residential real estate, people who were planning to move into a home from an apartment cannot. And those who have been in their homes and have lost them, or are about to lose them, are moving to apartments. The next time you drive down the road, take a look at what has disappeared -- signs advertising free 1st month rent, free appliances, free 3 months of heat, etc. Owners no longer need the incentives to get people into their apartments.