Homeowners Going Into Debt to Buy More Real Estate

Oh yeah, this has the makings of a bubble written all over it. Today's front page of the Wall Street Journal had a story about how people are taking any equity that has built up in their homes and buying "investment" real estate. As more and more real estate becomes "investment" properties, it causes a glut in rental units. We all know how supply and demand works. As the supply of rentals increases, the rent for each unit goes down, making it more difficult for landlords - investors - to make a profit.

Here's a telling quote from the Journal article:

"For now, however, so many Americans are racking up such huge paper profits in real estate that herds of new investors are crowding into the market every day. Thanks to rising home values, they have lots of money to spend."

The article goes on to say that according to Economy.com, Americans pulled out about $705 billion in equity from their homes last year compared to $266 billion in 1999. That's a huge increase that was probably fueled by the fact that the average home price rose 50% in the last 5 years.

Tags: Housing Bubble, Home Equity Loans