BluefoxToday blog : Real estate speculators

Real estate speculators

 

Real estate signWho are these guys? The talk about who is to blame for the subprime jolt is going around as strong as ever. Consumer advocates are leaning hard on the mortgage industry. Washington is probing into the practices of the secondary mortgage market that packages loans for investors. Lenders are pointing the finger at real estate speculators. And so it goes. Oh, wait, why don't we take a look at the speculators, or investors.

Let's examine unscientifically how human nature and a market economy interact? To me one large reason to the current real estate mess is the adverse impact caused by the speculator. I can indentify two kinds of them.

One is the professional speculator. He's often called a flipper. He's knowledgeable about property values and mortgage financing and how to smooth-talk. He spends his time searching for a market about to make a move and when he finds one, he jumps in and starts acquiring assets. In time more speculators smell profit in the same market and follow the lead man in and all this fuels the rising market into a nice gallop. Early on and midway through they all garner handsome profits. If they're smart, they'll time the end of the cycle and then get off the runaway train and start the search all over again.

The other is the weekend speculator. He's your regular homeowner who keeps a half eye on the neighborhood property values and knows exactly what type of a home loan he has. All of a sudden he realizes that the house down the street sold for much more than it should've, because the pro speculators had moved in and were bidding up prices. He gets excited about the prospect of earning some real money by becoming a part-time investor. Large dollar signs dance across his eyes. He bravely buys in and soon others like him join the frenzy and so it continues until the artificially created upmarket just slams into a wall for everybody. And it's all over, the dollar signs broken up and scattered across the yard.

Those who entered the hot real estate market late are now licking their deep wounds. But the fact of the matter is that it's human nature to seek gains, or profits. In this case money. And the basis of a market economy supports that condition. As long as we have a market economy, we'll have the inevitable ups and downs because we, the people, make it behave that way. Those who choose to participate have only themselves to blame if their timing is off. And those who decide to stay out and look from the sidelines, prepare yourself early for the downturn.

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 9 commentsEsko Kiuru • May 25 2007 06:54PM

Comments

Esko, we had many in my market that entered too late and they are now paying the price. They always tell me the same story "Our friend bought a house and flipped it for a profit and told us about it so we decided to do the same thing" Of course the friend was in and out and these folks didn't buy until late 2005 early 2006. Too late. Most are now facing foreclosure. The houses they paid $225,000 for are now worth $185,000 and they owe $210,000. I hear this same story every week.
Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) about 11 years ago

Bryant,

The party didn't last long enough for everybody. Most of these too-laters are the weekend kind, but there are some pros, too, who just mis-timed the market. Or got too greedy. When you decide to play with big money, do your homework, is my advice.

Posted by Esko Kiuru about 11 years ago

Esko--It was not even 2 years ago now that Money Magazine was touting Condos to Americans as a great investment. People buying 2 or 3 at a time sight unseen. I cancelled my subscription due to the irresponsible advice.

The market was flattening even back then...But investors are always told not to invest more than you can afford to lose. Now that is good advice!

Posted by Teri Eckholm, REALTOR Serving Mpls/St Paul North & East Metro (Boardman Realty) about 11 years ago

Teri,

In any investment cycle there always will be late-comers who get burned when it fizzles. It's true that don't invest more than you can afford to lose. 

Posted by Esko Kiuru about 11 years ago

Esko- Interesting that you just posted this.  It reminds me of what I just wrote about people seeming to always be looking for easy money.

Posted by Christina Lackey, Syracuse Central New York Real Estate (Coldwell Banker Prime Properties) about 11 years ago
investing is one thing...speculating another
Posted by Chris Lengquist, Kansas City Real Estate Investing (Ad Astra Realty) about 11 years ago

Christina,

There'll always be people looking for the easy way to riches.

Chris,

No doubt about it. Two separate philosophies.

Posted by Esko Kiuru about 11 years ago

Living in Vegas, one often wonders if the flippers had not come here, would we even be in the situation we are. Prices were driven up $20,000 a week and faster as homebuyers in it for the long run and needing houses were having to outbid flippers to get a home.

One home bought for $200,000 one day sold for $300,000 the next week.

 

The blam game is not really a who, but a what.....GREED.

 

Greed drove us to where we are today and now everyone is paying the price for one of mans worst vices/ 

 

 

Posted by wondering almost 11 years ago

Wondering,

Flippers were a large reason to the huge run-up in prices a few years ago and now the glut of homes on the market.

Posted by Esko Kiuru almost 11 years ago

Participate