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Wild and Crazy Times at the Low End of the Housing Market

Floyd Norris had an interesting piece on the impact of investor purchased homes on prices at the lower end of the housing market. His takeaway is that investor purchased homes have made housing less affordable for many low and moderate income households.

While this is partly true, by focusing only on the last couple of years the piece misses much of the picture. While investor purchases have pushed prices to unusual levels in many markets, in some cases they essentially put a floor on the market, helping to stabilize prices at levels that are consistent with longer term trends. The chart below shows house prices in the Case-Shiller indices for the bottom third of the market for five cities. (This is the same series used for the charts in the article.) 

btp-2014-07-06

There are several features of this chart worth noting. First, it is possible to see a rise in house prices (most pronounced in Minneapolis) in the middle of 2009. This was the result of the first-time homebuyers tax credit. This policy currently ranks #1 as most boneheaded policy of the century. It encouraged millions of people to buy into a market that was still inflated by the housing bubble.

Dean Baker / July 06, 2014