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Flippers flip houses, reselling them at huge markups, causing prices to rise too fast to be sustained/supported naturally.
In the mean while, banks allowing those with horrible credit to be able to purchase houses, causing more demand (a sellers market)
Mix this with a "keep up with the Jones'" attitude which cased them to buy houses above their means causing giving flippers more profits and incentive to flip more and raise prices even higher.
Which banks then allowed those with horrible credit...
A lot of people obtained second mortgages on the home during the bubble. They were likely underwater as home prices declined 20 percent or more in most areas. It doesn't tell you whether someone is flipping. I think there was an investment bubble which can be discerned by the large discrepancy between homes built and the number of new households formed.
It doesn't tell you whether someone is flipping. I think there was an investment bubble which can be discerned by the large discrepancy between homes built and the number of new households formed.
I agree that simply having a 2nd mortgage doesn't define a flipper, but not sure about the rest of your statement. Household formation is a function of affordability and demographics, and had been falling before this period as home costs rose AND house size rose. When the average home size is nearly double the size from a generation earlier, you can't look at household formations and expect it to be constant if prices are rising. Extended families basically have a 2nd entire house added to their first to use.
In short, I don't think household formation is a useful metric.
I don't think declaring that 'flippers' caused the most foreclosures during what we are calling a 'housing bubble/ housing crisis' is very descriptive either, unless you don't consider flipping to be a job or real economic activity. Its basically the same as saying " steel factories took a hit when the steel working industry failed".
I still think that simply declaring this a 'housing bubble' masks the true cause, especially since housing prices are higher now than they were then in most areas, post bubble mega corporations got into the renting/flipping business, and upper income house flipping is still a thing today.
The housing crash was an effect of a credit (or maybe other parts of the economy too - not 100% sure) crash, not a cause.
I had also recently seen that article and saved the link.
In 2005/6 house flippers in AZ gave me the reason to go defensive with my major stock and house investments. Of course I did not think the whole world would be involved, but enough areas all across the country. It caused me to remodel instead of building a new house, thinking that I would have sell the old one in a down market.
In the mean while, banks allowing those with horrible credit to be able to purchase houses, causing more demand (a sellers market)
Banks were REQUIRED to make a certain percentage of loans to "disadvantaged borrowers"--defined as someone who wouldn't otherwise qualify for a loan. Like if they didn't have a job or had poor credit.
This was a result of some housing bill passed by Congress. I'd have to find it again--don't remember the name of it right now.
Of course when it all fell apart--which it was pretty much guaranteed to do--it was the banks fault.
I don't think the flippers had anything to do with it besides accelerating the inevitable. Even without flippers we would of ended up there eventually as long as we maintained the same lending practices. Prices go up when demand outstrips supply. The problem was we created false demand by giving loans to people who never should of been given loans and we gave out loans that where way too risky. Were some flippers, absolutely, lots, but the only reason they where flippers was because of the easy money to buy the houses. Without those loans, there wouldn't of been all those flippers.
The easy money to anyone who could fog a mirror was the root cause. Once that money stopped, people couldn't refi or sell and the market collapsed because most couldn't pay the mortgage payment since they where never really qualified to begin with. Flippers, home owners, upper middle class, poor, it didn't matter. Most people where in way over their heads and the only thing holding it all up was the appreciation. You either sold or refi or went broke trying to pay the payment. Especially after all those interest only loans converted. You where basically forced to be a flipper or a refier which accelerated the whole process.
I was heavily involved in the RE game in SoCal during all this and I knew dozens of people who knew without a doubt that they where in over their heads but didn't care ONE BIT. These where people who looked it like so what...... I get to live in a nice big house, refi until the wheels come off, and when it all collapses I foreclose and walk away and since I have ZERO money of my own involved, big deal, at least I got to live in a house that I wouldn't of been able to normally.
Everyone was living out their dreams and since there was no risk, no one was scared to do it.
When you are giving out 80/20 interest only, stated income loans to anyone who is willing to sign on the dotted line, or giving loans with no downpayment (especially for investment buyers), or not attaching the amount of money loaned to their income, or any number of things they shouldn't of been doing, you are going to have problems, lol.
Last edited by High Altitude; 09-15-2017 at 01:30 AM..
Banks were REQUIRED to make a certain percentage of loans to "disadvantaged borrowers"--defined as someone who wouldn't otherwise qualify for a loan. Like if they didn't have a job or had poor credit.
This was a result of some housing bill passed by Congress. I'd have to find it again--don't remember the name of it right now.
Of course when it all fell apart--which it was pretty much guaranteed to do--it was the banks fault.
Agree! And, sadly it is happening again. It's just not as rampid or talked about. Frankly, it's as if we learned nothing from the past.
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