Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis

52 Pages Posted: 13 Sep 2011

See all articles by Andrew Haughwout

Andrew Haughwout

Federal Reserve Bank of New York

Donghoon Lee

Federal Reserve Bank of New York; New York University

Joseph S. Tracy

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Date Written: September 1, 2011

Abstract

We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.

Keywords: mortgages, leverage

JEL Classification: G21, D18, R31

Suggested Citation

Haughwout, Andrew F. and Lee, Donghoon and Tracy, Joseph and van der Klaauw, H. Wilbert, Real Estate Investors, the Leverage Cycle, and the Housing Market Crisis (September 1, 2011). FRB of New York Staff Report No. 514. Available at SSRN: https://ssrn.com/abstract=1926858 or http://dx.doi.org/10.2139/ssrn.1926858

Andrew F. Haughwout (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
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Donghoon Lee

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
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212-720-8699 (Phone)
212-720-1844 (Fax)

New York University

NY
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Joseph Tracy

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6344 (Phone)
212-720-2630 (Fax)

National Bureau of Economic Research (NBER) ( email )

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H. Wilbert Van der Klaauw

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)

IZA ( email )

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