First-time California homebuyers, which brokers and builders hope will revive the real estate industry by absorbing the glut of REO properties on the market, have encountered surprising difficulty purchasing low-end property valued below $200,000.
Competition is the primary culprit as banks are intentionally staggering the flow of REO properties back into the market. While this prevents a flood of foreclosed properties from inundating the market all at once, it sparks biddings wars in which novice first-time buyers are pitted against a notoriously greedy hit-and-run beast: real estate speculators.
Speculators, who purchase property with the intent of later flipping it at a profit, have the financial reserves to outbid the typical first-time buyer, or offer a cash down payment to make their bid more enticing. Thus, many potential first-time buyers who want a place to live are crowded from the market by ravenous speculators who seek not shelter but profit on a flip after holding the property vacant.
first tuesday take: Speculators are hypnotized by the momentum of upwardly moving prices and purchase properties with the intent of reselling them to FHA-insured home buyers. The presence of speculators in the real estate market inherently sabotages any chance for a real, tangible recovery. Speculators gobble up wealth by sandwiching themselves between the true owners of real estate: buyers and sellers.
The number of speculators acquiring REO properties in California is growing each month. Real estate speculators, besides helping themselves, help no one besides brokers, escrows, and title companies directly involved in the hit-and-run flip. Speculators do not enter the real estate game with the intent of procuring a long-term revenue source and they don’t intend to occupy the properties they purchase – they want easy money, and worse, they remove the wealth they gain from the real estate market.
Speculation is detrimental to a healthy real estate market, evidenced by speculators’ massive participation in the Millennium Boom which occurred between 2002 and 2005. Builders abhor speculators as they remove properties from the market only to return them later to compete with builders’ further sales. Thus, the same nefarious breed that contributed greatly to the economic implosion is now the first in line to scavenge through the debris.
Re: “Home Front: Competition frustrates first-time buyers,” from The Sacramento Bee.
This describes EXACTLY what appears to be going on in the South Florida real estate market as well based on this week down here from Orlando trying to buy a house. My parents were pre-approved for a loan and were going to buy a house and rent it to own to me since I couldn’t afford the down payment myself. It turns out that none of that matters and that the MLS is just a big lie for any house under $180,000. They are apparently posting these properties only AFTER they have already made a contract deal with one of these cash speculators. Every single property we tried to see was either uninhabitable or was already under contract although it had been sent to us as a “new” listing by the real estate agent apparently as “chum” to lure us into their office so that they could try to up sell us a house we couldn’t afford that would be likely underwater if we had to sell it in five years. They bid the prices up for the decent houses for would be buyers but sellers can’t sell their property to anyone but these speculators. It seems pretty clear to me that the banks, the agents and the speculators are all acting in collusion to deny actual people the ability to buy and then live in the houses they buy. I think the only solution is a law saying you cannot own more than 3 houses and any house above that will be seized and sold at auction to anyone owning less than 3 houses.