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updated 12/12/2011 4:23:30 PM ET 2011-12-12T21:23:30

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an "undocumented" dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

More than a third of all U.S. home mortgages granted in 2006 went to people who already owned at least one house, according to the report. In Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble. Buyers owning three or more properties represented the fastest-growing segment of homeowners during that time.

"This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," the researchers noted.

Investors defaulted in large numbers after home values began to drop in 2006. They accounted for more than 25 percent of seriously delinquent mortgage balances nationwide, and more than a third in Arizona, California, Florida, and Nevada from 2007 to 2009.

As a result, millions of homeowners saw their home values decline so that they were worth less than the original purchase price. Foreclosures skyrocketed as people couldn't or refused to pay their underwater mortgages. Residential construction also languished, putting hundreds of construction workers in the hardest-hit states out of work.

The report concludes that lenders and regulators must limit speculative borrowing to avoid future housing busts. For example, in China, government officials are now requiring higher down-payments and mortgage rates on investment homes, according to the report.

In Nevada, which has the nation's highest foreclosure rate, the housing market remains weak, with home prices continuing to fall in the Las Vegas area, where most of the state lives.

Home prices were down 7.3 percent in November compared to a year before, according to the Greater Las Vegas Association of Realtors. That means the median price dropped from $134,900 to $125,000 in one year. More than half of all home sales were purchased with cash.

Paul Bell, president of the real estate association, said amateur investors were behind the soaring home values seen during the first half of the last decade, but noted those buyers were simply taking advantage of how easy it was to buy homes at the time because of questionable lending practices and government pressure on banks to promote home ownership.

"There was blame to go around for everybody," Bell said.

The market has now shifted so that cash investors are helping Las Vegas recover by buying multiple vacant homes, fixing them up and selling them, Bell said.

"If we did not have the serious investors in the market ... we would have many neighborhoods in a very run-down condition," he said.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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