Investor Share of Mortgage Borrowing By Selma Hepp. Ph.D., Senior Economist
Based on a new source of data developed by the Federal Reserve of New York and called Consumer Credit Panel (CCP), the New York Fed authors showed that the share of flipper investors during the bubble years were higher than was previously estimated. Since investors were not acknowledging their status on the mortgage applications, The Fed authors were able to see this by incorporating fuller credit-report information available with the CCP.
By their count, the share of new U.S. mortgage borrowing going to investors buying multiple homes grew from around 20 percent in 2000 to nearly 35 percent at the peak of the market in 2006. See Graph below on the difference between self-reported inventors and the estimate share using credit data.
In states with the most pronounced housing cycles—the “bubble states” of Arizona, California, Florida, and Nevada—the investor share increased faster, rising from almost 25 percent in 2000 to 45 percent six years later.
These bullish investors, by some accounts, drove up the housing bubble by taking advantage of weakening credit standards to put less money down and gravitated toward nonprime credit, even if more expensive, to make purchases. Their likelihood to default, once house price appreciation expectations froze, subsequently contributed to the intensity of a decline.
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