The Great Recession: What Really Caused It?

Hey pal - want to get rich on real estate?

Not disposed to permit the truth to undermine an opportunity to score political points, the political party, and its allies, who coveted re-capturing the White House in 2008 were not about to lay the blame for the onset of the Great Recession that began in 2007-2008 at the feet of the most deserving - the American middle and upper-middle class [see "What Caused This Terrible Recession?"]. No indeed, their votes were needed.

Now, quietly, behind the scenes, the truth emerges - in a December 5, 2011 study by the New York Federal Reserve titled, "'Flip This House': Investor Speculation and the Housing Bubble" it is revealed that it was speculative "investors" in residential real estate - meaning, every American who could afford to buy a home with prospect for appreciation - who "played a very important role in the housing downturn by defaulting in large numbers" when the party (helped along by high oil prices) came to an end:

•Investor shares of home purchases roughly doubled between 2000 and 2006.
•At the peak of the boom in 2006, over a third of all U.S. home purchase lending was made to people who already owned at least one house.
•In 2007-2009, investors were responsible for more than a quarter of seriously delinquent mortgage balances nationwide.

Moreover, in California, Arizona, Nevada and Florida:

•While investors were responsible for one third of all home purchases nationwide in 2006, this number is approximately 45 percent in these four states.
•Furthermore, investors with three or more properties constituted 20 percent, which is triple their share from 2000.
•In the years following the bubble burst, investors were responsible for more than a third of delinquent balances in Arizona, California, Florida and Nevada.

Moreover, this Federal Reserve study fails to account for Americans who were investors" by dint of flipping their primary residences.

Of special note above is that "Investor shares of home purchases roughly doubled between 2000 and 2006". Notice how nicely this coincides with 9/11 and the subsequent collapse/stagnation of the stock market. In short, yuppies saw their dreams of lavish retirement threatened in the wake of 9/11 and placed their bets in the best safe haven they could think of - residential real estate (see "14,164.53 - The Genuine "Most Important Number in the World""].


Sources for this post include: "Investor Speculation and the Housing Bubble", National Center for Policy Analysis