24/7 Wall St.

According to a recent survey conducted by Move.com the some people interested in purchasing real estate as an investment has doubled since March 2009.  The results show that this growth has been driven by falling housing prices and increased foreclosures.  According to the survey the number of homebuyers that plan to buy an investment property has risen to 12.1%.  A significant number of these purchases are happening in the foreclosure market, with 42% of purchases of foreclosed homes being speculative.

Speculative buying in the housing market is an important force in the effort to put a bottom on home prices.  However, the number of homes available on the foreclosure market continues to rise.  Areas of the country that were the biggest drivers of the housing boom are now seeing record levels of home foreclosures.  In September, home foreclosures reached a record level of 8,800, up 90% from a year ago. Without adequate funding, it’s almost certain that the buying power of speculators will be insufficient to sop up the increasing number of foreclosed homes hitting the market.

Even if the number of people investing in real estate continues to rise, their presence in the housing market may cause some bumps as the market begins its recovery.  The Move.com survey indicates that close to 60% of speculators expect to buy their foreclosed homes for around 20% below value.  If this turns out to be the case, sellers of foreclosed homes will probably in a position to sell as a profit well before other market participants.  They are likely to turn over real estate quickly for a rapid return. Depending on how large of a portion of the market speculators represent, their selling may have a depressing effect on the market just as recovery gets underway.

Garrett W. McIntyre