If you thought you knew all the reasons why your Denver home has lost value, think again. As the Government continues to investigate the recent housing crisis, they have discovered something rather interesting. A report by the Federal Reserve Bank of New York shows that speculative real estate investors, commonly known as “house flippers,” may have had a larger impact than first thought in the housing bubble that helped create our current economic mess.
When down payments were low, house flippers used subprime credit and relaxed lending requirements to purchase multiple properties in Denver and throughout the country. More than one-third of home mortgages in 2006 were obtained by those who already owned at least one house. In fact, the fastest growing segment of U.S. homeowners between 2000 and 2006 were those owning three or more properties. This buying spree caused prices of owner-occupied single family homes to more than double from 2000 to 2006, particularly in Arizona, California, Florida and Nevada.
However, when home values began dropping, the house flippers began to default in record numbers. In 2006, more than 25 percent of extremely delinquent mortgages in the U.S. were held by multi-home investors. U.S. home values then plummeted below homeowners’ original purchase prices, leading to myriad foreclosures because folks couldn’t—or wouldn’t—pay their underwater mortgages. Residential home construction also fell off at this time causing high unemployment among construction workers.
To prevent future housing bubbles and their disastrous results, the report states that speculative borrowing must be limited by higher down-payments and higher mortgage rates for investment homes. The questionable lending practices of the time made it very easy for house flippers to buy numerous homes, and they simply took advantage of a great opportunity—but no one was minding the store and the result was a huge negative hit to the economy.
Tougher lending requirements along with serious cash investors are helping the hardest-hit states to recover little by little. Hopefully this will work its way into the overall economy to help homes in Denver and across the U.S. to recover their value.
Let the professionals at the Bandy Team help you buy or sell a Denver home, contact us for a no-obligation consultation. If you’re thinking about buying a home in Denver, we can show you some terrific properties in Denver, including homes in Denver Highlands and real estate in Washington Park (also known as Wash Park). You may also be interested in horse property in Franktown or homes in Parker, including a wide variety of homes in Canterberry and real estate in Stonegate.
Marianne Bandy
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