Industry News

Worrisome signs in housing market

Opinion: Property flipping, poor underwriting and speculation
Published on Jun 18, 2004

Three news stories this week made us pause: rising interest rates, Federal Reserve Chairman Alan Greenspan's warnings about the glow coming off the hot housing market and the downturn in Los Angeles, the largest real estate market in the U.S. But another story worries us even more: "Las Vegas real estate boom may boost foreclosures." Problems in Sin City are not new, but as we peeled back the onion on the housing market there after this story ran, we became very concerned, particularly if this sort of behavior is happening elsewhere. Here is the recipe for disaster in Las Vegas and we fear in other hot markets around the country: rising interest rates, the willingness of lenders to accept payment to income ratios of more than 40 percent, and price appreciation at an unsustainable 31 percent year-over-year. And there is more. We learned that Las Vegas is ripe with property flipping, which occurs when a buyer buys today and sells tomorrow at a higher price. In short, that is sheer spec...

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