Mortgages & Creative Financing

How Speculators (Investors?) Dominate Real Estate Sales, and May be Blamed for Further Crashes

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According to to Bloomberg:

As the U.S. housing recession enters its fourth year, there’s no sign of a recovery because speculators account for most of the rise in sales.

While the purchases are trimming the inventory of unsold properties, most of those bought by speculators will likely return to the market when prices rise again, hampering any recovery, said Nobel laureate economist Joseph Stiglitz and Yale University Professor Robert Shiller in interviews.

According to Schiller, “These speculators are preventing the market from crashing now, and when they get out it could fall again.” Note that in this case, speculators, more likely than not, refers to real estate investors, who are savvy enough to scoop up great deals in this distressed market.

Should Real Estate Investors be Blamed for a Future Worsening of the Housing Crisis?

This all presents a serious dilemma for our policy makers. Most policy decisions are short-sighted; the initial bailout and all following ones were intended to stop the bleeding. How can the politicians stop these “speculators” from dumping the homes for profit when things start to turn around?

I don’t have an answer. It would seem that it is perfectly in their right to do so, wouldn’t it?

If that’s the case, then is there a better way to solve this? Perhaps there is some way to get homeowners buying the properties instead of these dirty little speculators (sarcasm)?

Well, back to the Bloomberg piece:

“Regular homebuyers are excluded from the foreclosure market because the rules favor professional investors and that lack of competition is driving down prices,” Baker (Dean Baker, co-director of the Center for Economic and Policy Research) said. “This is a place where the government could step in and stop housing’s downward spiral by encouraging a more user-friendly process.”

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Banks that have received federal bailout funds should be forced to sell foreclosures in a way that gives homebuyers a fair chance, said Stiglitz.

I don’t see this happening unless there is a complete change in the way foreclosures are sold. Homeowners don’t typically have the understanding of the dangers of buying foreclosures, and can get themselves into a lot of trouble by purchasing at the courthouse steps. Does the government plan on wiping out all liens on foreclosed properties to make this plan happen, in a similar vein as an REO? I don’t think the lending industry would allow that to happen, do you?

Any thoughts on this giant mess?

Photo Credit: whiteafrican

Joshua Dorkin is a serial entrepreneur, investor, podcaster, publisher, educator, and co-author of
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    Replied about 11 years ago
    The answer is for the investor to do a rent to own. I think this is going to be huge once the credit market stabalizes.
    Replied about 11 years ago
    The answer is for the investor to do a rent to own. I think this is going to be huge once the credit market stabalizes.
    Mark V.
    Replied about 11 years ago
    No there is not much fault that can be attributed to real estate developers for the worsening of the housing crisis. It is an open market place and they were just earning big money because people did not mind paying high prices. I think the banks should be pulled for the problem, they lent money to those who could never repay the same.