What percentage of your buyers are investors?

  • 30% or greater. (42%, 11 Votes)
  • 5% or less. (27%, 7 Votes)
  • 20% (23%, 6 Votes)
  • 10% (8%, 2 Votes)

Total Voters: 26

Bidding wars are back as demand for housing surpasses supply, per recent reports.

In addition to low construction of new homes, negative equity has made many homeowners reluctant or unable to sell, keeping these underwater properties off the market.

Further, buyer-occupants for low- to mid-tier housing are losing out in bidding wars to seasoned investors with more financial weight to throw around (read: cash) and visions of scoring big with profit-heavy resales.

first tuesday take

This argument has a glaring blind spot, the centrist position taken by most newspaper reporters as holy writ. Not at first tuesday!

What this reporter’s conclusion fails to address is the massive percentage of speculators behind the “bidding wars” forming a crowd outside open houses. These investors snatch up properties before the end user of the property can step forward, i.e., those who intend to occupy it or hold it for the long-term as a buy-to-hold investor.

Speculator activity is not a true indicator of demand, rather a recycling of houses among sellers — musical chairs for the real estate industry which shifts the risk of resale.

Further, high speculator activity is a present danger to the stability of any real estate market (except when a liquidity crisis is directly at hand, which is not currently the case), as artificial demand creates asset inflation — witness the function of speculator lungs in the late Millennium Boom.  Boomtime speculation was propelled by adjustable rate mortgages (ARMs); today’s speculators use idle cash for quick property purchases.

Related article:

It’s the demand, stupid!

Approximately half of all California homes sold in May 2012 were bought by speculators, those with larger cash reserves than the typical homebuyer seeking occupancy. Speculators’ plan is to either immediately resell their purchase (flip it), or quickly renovate and resell it (fix then flip).

Either way, they do not intend to hold the property for any substantial length of time or use it in any sizeable way. Thus, they will soon reenter the real estate fray having stepped into the shoes of the seller – hoping to find a long-term buyer for the property at a jacked up price…whom?

In the meanwhile, the flow of shortsales and real estate owned (REO) properties will collectively remain about the same for the next two or three years.

Related articles:

Speculators thwart first-time buyers

Blame speculators for the intensity of the boom and bust

In conclusion, a sustainable demand is sorely lacking. These recent glowing news reports are misled by the illusion of demand, created by speculators whose economic real estate function resembles that of a seller, not a buyer. Speculators pass the home on and on and on, making a few bucks with every transfer of the house to a new stand-in seller. This conduct artificially drives up prices in a dangerous asset-inflation game, called the financial accelerator effect.

So, where are the true buyers, the end users who will permanently remove these properties from the MLS inventories?

Answer: Either shackled to their underwater homes, or ostracized from the real estate market by foreclosuretainted credit scores.

There is also the unemployed segment of the population who would love to buy and are at liberty to buy — ready and willing — but until jobs are created (by private enterprise or government), have no ability to qualify.

No, the market is not heating up yet, save for this artificial speculator fueled mini-bubble, and won’t for another few years, likely in 2016.

Until negative equity homeowners get their heads above water, foreclosed homeowners’ credit scores heal, and the employment rate in California grows to about 350,000-400,000 new jobs annually for 18 to 24 months, the “high demand” everyone is shouting about will continue to be no more than a juggling act between speculators — those merely assigned a right-to-sell position.

Re: “Shortage of homes for sale creates fierce competition” from The Sacramento Bee