Here's Why Speculators Aren't Causing Another Housing Bubble

Join the Fool for a talk with Chris Mayer, who is the Paul Milstein Professor of Real Estate and Finance and Economics at Columbia Business School. Mayer is also a visiting scholar at the Federal Reserve Bank of New York, and the co-director of the Richard Paul Richman Center for Business, Law, and Public Policy. His research has delved into topics such as housing cycles, mortgage markets, debt securitization, and commercial real estate valuation.

Mayer looks at a number of influences on housing prices. Do out-of-town speculators push local prices too high? Should you track your home's value on Zillow?

Full transcript below.

David Hanson: You've done some work on out-of-town speculators coming in, and how that can inflate markets like Las Vegas. Do you see those companies -- like a Blackstone -- do you see that as pushing housing prices too high, or is that the natural force that someone's going to come in and buy the house if it's a good deal?

Chris Mayer: I think any investors coming into the market ... what we did in our research basically showed that when investors come into a housing market, they push prices up. Frankly, for your aficionados, this isn't really news. When a bunch of investors come in or there's a recommendation to come in, what happens? Prices rise. That's not really rocket science.

Almost surely, the influx of investors has raised house prices off of the floor that they were before. That doesn't necessarily mean that they're a bubble, or that investors are paying crazy prices for things as well. It really depends what's behind the business model.

If the model was, "I'm going to buy and flip," lots of people have gotten into trouble with buy and flip models for housing because you have to time it right and, frankly, it's very expensive to hold them and renovate them and do all this stuff.

If the idea is to build a business that is a long-run operating business, that's a different business model. I think there are going to be people who succeed at building that business as a whole, just because you had so many mom-and-pop shops who were not terribly efficient, who were doing this before.

Hanson: There's been research done, academic research; Shiller has gone back and said, "Real home prices over the course of time, basically stay with inflation. We shouldn't expect huge gains in home prices."

We're continuing to see that people move away from that. People continue to expect these big prices. Is it always going to be that way? People are going to go on Zillow, go on Trulia and say, "Oh, man, my house is up 10%. This is great. I should expect that, going forward."

Is it always going to be that way?

Mayer: I don't think so, but I'm not 100% sure about that. The surveys that Case and Shiller have done are really interesting. When home prices are rising, people are all about what their home is worth, and their surveys show that. When home prices are flat or falling, and you ask people what their home is about, it's a place to live.

There's always a little bit of ... the psychology around this is, "When I feel wealthier, of course then I talk about price increases."

But I think, at its core, most Americans who buy homes believe they're buying homes to live in them; 19 out of 20 young Americans surveyed still say they want to be homeowners. I don't think that's gone away, in any way.

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