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.