Housing Speculators Like it Hot
The National Association of Realtors believe that 25% of U.S. home sales in 2005 were made by speculators. However, one thing housing speculators don’t like are high housing prices. That’s why many have steered clear of the Southern California housing market, and many there are thankful since it would have meant even higher prices. Instead, specultors have headed to more “affordable” locations such as Phoenix, Las Vegas, coastal Florida, and central and northern California which is causing these areas some concern.
For example in Phoenix, speculative buyers helped inflate the median home price by an astounding 40% in 2005, the highest growth rate in the nation. The median home price rose to $255,000 in the fourth quarter.
The concern, as many economists point out, is that too much speculative activity from investors hoping to turn a quick profit is perhaps the biggest sign that a real estate market is in an overpriced “bubble” condition. Typically, too many speculators in any given market can artifically inflate housing prices. When speculators get the sense that the market is peaking, they tend to sell all at once, sending prices into a free fall.
That is what appears to be happening in Phoenix now. Many investors are looking to sell quickly because they are having trouble finding renters willing to pay enough to cover these inflated mortgages.
It raises the question will this panic other investors causing them to sell? If so, what will happen to these markets long term?