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Flip This Economy

An old pearl of wisdom from the Great Depression held that investors should have known it was time to sell when shoeshine boys started handing out stock tips. The day traders of the late-1990s were a recent version of the same phenomenon. When the dumb money is rushing into the market, it’s probably a smart time for you to bail.

Until this past week, I thought of the house-flipping craze of the mid-aughts in the same light. The fact that there were enough speculative, small-time investors in house prices that A&E turned it into a reality show was surely a sign of a market out of control.

But what I didn’t realize was that, unlike the shoe-shine tipsters of the ’20s, house-flippers were actually driving the price explosion. New research from the Federal Reserve Bank of New York indicates that flippers were in fact sufficiently numerous and active to make a major impact on prices, and that these facts have interesting implications for both monetary policy and bank regulation in the future.…uch_worse_.html

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