Speculators dominated first-time homebuyers in 2009 Sacramento home sales through the use of cash-buyouts. Those with money in hand are jumping at the opportunity to acquire real estate at a cost of up to 10% less than the listing prices. Investors with available cash are offered deals not available to first-time homebuyers, effectively allowing cash buyers to “push” all others out of the way.
Viewing California as a gold mine, speculators are hitting the state’s housing market with incentives ranging from flipping houses for a quick buck to securing a retirement fund that will be primed and ready as soon as the market shifts for the better. Cash holder motivations revolve around using the current state of affairs to their advantage.
DataQuick attributes over 27% of the closed escrows in Sacramento County to cash buyers in 2009. Unable to compete against the ease and reassurance banks find in cash offers, first-time homebuyers stand no chance in the bidding wars they are forced into against cash-wielding investors. [For more information regarding the struggle first-time buyers have in an investor’s market, see the August 2009 first tuesday article, Once again, speculators are a plague on the market.]
first tuesday take: In a wounded housing market, speculators act as parasites breaking down the strongest chances California has for recovery. Shoving first-time homebuyers aside and snatching up cheap real estate forces loan applicants to bow their heads and move elsewhere. This trend of cash-buyouts of cheap property consequently floods our statistical reports with false numbers of the “strengthening housing market.”
While mortgage lenders are unsurprisingly drawn to cash offers for real estate owned (REO) properties, it disrupts those trying to enter the market and leaves the property unused until it is returned for sale at a higher price. With 40% of California homes purchased by cash buyers in recent months, owner-occupant homebuyers have no means of acquiring real estate except through a contingency for new loans. As a result, they are naturally having a hard time getting an acceptance of their offers to purchase REO property.
The speculator, as a short term, hit-and-run intermediary in the real estate market, adds nothing to the value of the property he acquires and resells. He makes no use of the property, but instead withdraws profits from the former owner, and eventually from the savings of the future owner, effectively bolstering his own gain on the back of our ailing real estate market.
Let speculators not be confused with investors, however. Investors who buy property with the intent of rehabilitating it add value to their purchase and are practicing nothing but sound economics.
Homebuyers, the rightful participants of home sales, struggle with their patience to stay standing in this quaking market, while the speculators shaking out what they can from the real estate economy had best watch the roof; it is eventually going to cave in on them.
Re: “Investors plunking down cash for homes,” from The Sacramento Bee
Agree with Mr Gordon and will add that it is not the responsibility of investors OR a speculators to revive the ailing economy or housing market in CA. Additionally, what does anyone owe first-time homebuyers? Basic economics will tell you that even if the homes are purchased by speculators or investors two positive things will come out of it – eventually someone will buy the home and live in it (and probably at or near the the original asking price the bank wanted, which harms no one including first time buyers) and finally, when the REO is finally out of the bank’s inventory and the newly rec’d cash is in their inventory, they now have funds to lend to buyers, perhaps even that first time homebuyer.
While I don’t use my license for sales, I find it deplorable that those that do are consistently blaming others for the position we find ourselves in in the housing market nationwide. Take a closer analytical look at each each of the transactions you conducted over the past ten years and sort out those marginal buyers you pushed through with clever financing schemes, cooperative appraisers, willing lenders, etc. If you had a conscience you’d realize who the really caused these problems
Of course back then you didn’t have to actually “sell” anything – you were an “order taker”, it didn’t matter how bad that burger tasted or how moldy the bun was, all you had to do was stand there and take an order from the next person in line; and there were so many people in line that if anyone balked about the taste or price you moved on to the next customer and sold it to them. ‘Course now you actually have to have sales skills and have to sell the product, a very sad fact the many that got a license to “get rich quick” are starting to find out.
Here in Fresno there are all sorts of investors including “Rehabilitators” & long term investors. It is very difficult or almost impossible to buy a home for cash and resell it at a profit without rehabilitating it. Many homes are being added to the rental market by investors providing ample supply. Rents are trending down slightly but investors are still getting good cashflow. This has provided housing for those who “loose” their houses.
To assume that all cash buyers are speculators is silly. My guess is that 1/3 of the cash buyers will live in the house, 1/3 will keep it as a rental and 1/3 will fix it and sell it.
Buying a house for cash, improving it by doing needed maintenance, and then selling it to someone who will live there provides a needed service which requires time and money by the investor. Most first time buyers will not buy a house that needs a lot of work.
How could people buying at most 10% of the homes for sale possibly affect Californias recovery.
Our reconvery is dependent on job growth. And our job growth is partially dependant on reasonable taxes and government regulations.
I think the ‘first tuesday take’ is beyond stupid and shows a complete lack of understanding of economics.
In La Quinta and the Coachella Valley, this is happening by the truckloads! I love my Investors because they do indeed rehabilitate and then sell the properties..good on them! But..those cash buyers who just renta and wait and squeeze out the home buyers looking for an actual “home” in La Quinta and the Coachella Valley….not helping us out here!