When the financial crisis hit and upturned the real estate market, many of the speculators fled in search of greener pastures. The hardiest among them — those with cash and a high tolerance for risk — are now making a comeback in the realm of foreclosure short sales. ForeclosureRadar.com reports 21% of California homes sold through trustee’s sales in November went to investors, up from 6% a year earlier.

Most of the properties purchased by these speculators are bought sight-unseen. In addition to improving the properties for a quick buck on resale, speculators playing the short sale market must take care of any damage left behind by previous occupants, or possibly deal with those occupants themselves if they have not vacated the premises.

first tuesday take: Speculators, ever true to their nature, are now seen to be coming out of the woodwork to again take up their roles bidding up real estate prices – literally. Of course, the auction environment of a trustee’s sale will mostly see speculators bidding against other speculators, as few owner-occupants take the risk of purchasing a home at auction. While this is riskier for the speculator and less widespread due to the current down market, the end result is the same as it was during the boom: speculators suck inventory off the market to gain a “quick buck.” This then creates an artificial dearth of properties available to prospective owner-occupants, which in turn creates artificially inflated prices on available property.

This increasingly familiar scheme will only lead to the same disaster which befell the market a mere four years ago: over-inflated prices and no real estate fundamentals to back them up.  If speculators are already beginning to swoop down and pluck properties out of this vulnerable perceived bottom-of-the-market, the real estate industry is in for a rocky road in the coming years.

Stay tuned for our January 2010 journal for a detailed analysis of speculator interference in the market!

Re:  House flipping makes a comeback from the Wall Street Journal