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