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How Home Flippers Drove The Housing Market Crash

The Federal Reserve Bank of New York says investors are the ones who drove Las Vegas’ catastrophic  housing market crash. New research shows that investors inflated the housing market between 2004-2007, making the plummet downward all the more dramatic.

In addition to that, these homeowners, being absent, may be more likely to just walk away, adding to blight in already-hurting Las Vegas communities.

Part of the problem was that while the boom times of Las Vegas real estate were ranging on, there was a sense that if you weren’t getting in on the action of investing, you were missing out. So, lots of amateur investors, with little experience, jumped into the market naively, without knowing exactly how to handle that investment.

KNPR asked Frank Nason, a corporate broker at Residential Resources, if he thought the housing boom of the 2000s was ultimately good for Las Vegas. After Nason let out a raucous, but unhappy, laugh, he said: “For anybody who’s still standing, I guess.” He added that he knows a bunch of investors and friends who have filed for bankruptcy, and a couple of people who’ve lost everything and killed themselves.

Nason says that investors created an inflated demand, which lead, eventually, to our current oversupply. “I think it’s a little disingenuous of the fed to point the finger at investors when arguably [the Feds] were part of the problem in low interest rates,” he says.

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"I don't think anybody had any idea the magnitude of what the collapse would turn into,” he says.

Another aspect of the housing problem, according to KNPR Senior Producer Ian Mylchreest, is that a lot of foreign and out-of-town investors came in thinking they’d gotten a deal, when, in fact, they weren’t as the housing marking was reaching it’s zenith. "Every housing market is local,” he says. “People don't have that local knowledge that you really need to make a smart investment."

According to Alex Chinco, a Ph.D. candidate in economics at New York University, about 20 percent of the price increase of Las Vegas homes can be attributed to investors. But, he says, many other factors fell into place, too. It’s hard to say how much they contributed to the overbuilding and low home prices, he says.

So did most people get a good deal when they bought during the boom?

“In general, no,” Chinco says. “They were actually buying right at the peak of the market in large numbers."

Of course, all of this is about more than just real estate investment. It’s about living and community, too.

"This isn't just about money. It's about quality of life,” says former Nevada gubernatorial candidate and Clark County Commission Chairman Rory Reid.  “An investor has a different mindset than somebody who's lived in the neighborhood for a number of years."

Were you a real estate investor during boom times? What do you think of this idea that investors are a big part of what caused our housing crisis? Let us know in the comment section below.

Paul Bell, Pres, Greater Las Vegas Association of Realtors
Rory Reid, former County Commissioner
Frank Nason, broker, residential resources