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Federal Reserve Bank of New York
Staff Reports
Real estate investors, the leverage cycle, and the housing market crisis
Andrew F. Haughwout
Donghoon Lee
Joseph Tracy
Wilbert Van der Klaauw
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.


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Andrew F. Haughwout & Donghoon Lee & Joseph Tracy & Wilbert Van der Klaauw, Real estate investors, the leverage cycle, and the housing market crisis, Federal Reserve Bank of New York, Staff Reports 514, 2011.
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Keywords: Mortgages ; Financial leverage ; Real estate investment
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Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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