House Flippers to Blame for Housing Downturn?

Carpet InstallationHouse flippers — made up of investors who bought up homes during the housing boom, possibly made a few upgrades to the home, and quickly resold the homes for high-dollar profit — played a larger role in causing the housing bubble than previously thought, according to a new federal report out by the Federal Reserve Bank of New York. The impact that speculative real estate investors played in driving the housing downturn has mostly been overlooked until now, the researchers note. 

The speculative investors used low downpayments and subprime credit in buying up multiple homes at once, the report says. Their actions attributed to home prices in some areas being inflated, researchers say. 

House Flippers to Blame for Housing Downturn?

Source: “Flippers’ Housing Bust Role Larger than Thought,” The Associated Press (Dec. 12, 2011) via NAR

Historic Low Rates Cannot Solve The Problem

Maybe Washington is finally getting the idea. Ben Bernanke recently said, “Historic low rates cannot solve the problem” and “strong housing policies to help the housing market recover are needed to advance a tepid U.S. economy.”

Given the current lending environment, many potential buyers either cannot or will not commit to purchasing a home. There are also thousands of investors waiting on the sidelines with deep pockets of cash to invest. There are simply too way obstacles and economic concerns. 

Last year’s Federal Tax Credits spurred activity for a few months but it quickly tapered off as the deadline passed.  I heard a speaker this week calling for capital gains and rental income to be tax-free for 10 years to encourage investors to come into the market and help absorb the excess inventory.

This idea has real merit.  These investors do not need loans and have the resources to rehab properties so we get real cash into the economy. Further, there is a real need for quality rental properties. Rather than a tax credit that costs the taxpayers money, let’s eliminate or reduce taxes on rental income for a fixed period of time. This would encourage investing in income producing (rental) properties, increase the supply of rental properties, and reduce the inventory of properties on the market.

Housing can help lead the way out if we create an environment that encourages private sector investment.