Speculators Account for Bulk of U.S. Real Estate Sales

According to a January 6, 2009 article at Bloomberg.com entitled No Recovery for Real Estate as Speculators Dominate Sales, the recent rise in sales of homes in the United States is due almost entirely real estate speculators who scoop up the properties at tax and foreclosure sales. Because these speculators do not plan to hold the homes any longer than they have to, this increase in sales is expected to delay a true recovery.

“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 Nobel Laureate economist and Columbia University professor Joseph Stiglitz. “We could see a double-dip in the housing recession if that happens.”

The last thing the United States needs right now is a double dip in the housing recession. The U.S., still reeling badly from the first dip, saw 3,100 foreclosures per day in November of 2008. That is over three times the number of daily foreclosures that occurred during the Great Depression of the 1930s, and many financial experts believe 2009 will be even grimmer, as more sub-prime ‘creative’ financing vehicles reset, forcing even more individual foreclosures, and as the commercial real estate market starts to hit the kids due to the ongoing credit crunch.

What does this mean for the foreign investor looking to take advantage of the currently depressed real estate prices in the United States? In spite of all this terrible news (or maybe because of it), the U.S. is still seen worldwide as one of the best places to invest in real estate. Current conditions do suggest, however, that foreign investors may have to hold their purchases longer than they would like before they see a good return, as several brief “false recoveries” evaporate as quickly and they appear, only to be followed by deeper plunges in price.

Foreign investors should carefully look at the areas in which they are considering property purchases with an eye to economic conditions on the ground and how long the current recession is likely to last. Then, investors should consider all possible costs of holding the property for that period of time and double that figure.

By all accounts, the U.S. downturn is looking to be a five year mess at best, and could even last much longer depending on how unforeseen events and circumstances unfold. For a basic overview of the 2009 U.S. property market, check out our own article investing in real estate in the United States