Moneybox: Flip This Economy

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Moneybox Flip This Economy A new study shows how short-term speculators made the housing bubble much, much worse. By Matthew Yglesias Posted Wednesday, Jan 04, 2012, at 08:40 PM ET An old pearl of wisdom from the Great Depression held that investors should have known it was time to sell when shoeshine boys started handing out stock tips. The day traders of the late-1990s were a recent version of the same phenomenon. When the dumb money is rushing into the market, it's probably a smart time for you to bail. Until this past week, I thought of the house-flipping craze of the mid-aughts in the same light. The fact that there were enough speculative, small-time investors in house prices that A&E turned it into a reality show was surely a sign of a market out of control. But what I didn't realize was that, unlike the shoe-shine tipsters of the '20s, house-flippers were actually driving the price explosion. New research from the Federal Reserve Bank of New York indicates that flippers were in fact sufficiently numerous and active to make a major impact on prices, and that these facts have interesting implications for both monetary policy and bank regulation in the future. The authors, Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw, were able to calculate how many home-buyers had multiple mortgages and thus how many people own multiple homes. The data let us see that the growth of house prices in the first half of the aughts was closely associated with a sharp rise in the number of people owning multiple homes. In 2000, only 20 percent of mortgages were going to multiple ... To continue reading, click here. Join the Fray: our reader discussion forum What did you think of this article? POST A MESSAGE | READ MESSAGES Also In Slate Lithwick: The Awesome Montana Judges Who Just Said Hell No to Citizens United Learn Programming in 2012. It Will Make You More Employable—and It's Kind of Fun. Why Do Women Vote Differently Than Men?	Advertisement
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