The market is driven by speculators

an. 8 (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.

“We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” said Stiglitz, a Columbia University professor of economics. “We could see a double-dip in the housing recession if that happens.”

“You don’t have it in strong hands, you have flippers,” said Shiller, who helped create the S&P/Case Shiller real estate price indexes. “These speculators are preventing the market from crashing now, and when they get out it could fall again.”

Dario Moscoso of San Diego tracks notices of default and negotiates directly with banks if a home doesn’t sell at auction. He bought a three-bedroom foreclosed house in San Diego three weeks ago for $490,000, half of what it would have fetched a year ago. He’s renting it for $2,500 a month and plans to sell when prices rebound.

“We hope to put it back on the market in about a year,” Moscoso, 52, said in an interview. “We’ll gauge the market and see how it goes.”


This is an interesting concept that I have not considered. In the IE, a large percentage of recent sales are investors, especially in the lower priced areas. Investor purchases will not help the economy as much as regular owner/buyers will. Investors will not spend money on furnishings, nor will they spend money on upgrades or pools. And what happens to the inventory levels when prices finally do start to rise and those investors want to cash in and take their profits? If the inventory spikes it could very well cause another dip in prices. Why do they bring up these scenarios. It makes my head hurt....... or maybe that's the scotch.