Posted on: Friday, March 11, 2005

Concern builds as speculators snap up every available home

By Mary Umberger
Chicago Tribune

On Valentine's Day, the first of about 600 hopefuls began to line up for a three-day vigil outside the sales tent of a Boynton Beach, Fla., developer, where they hoped to nail a condo.

Among them were a couple of stand-ins for real estate agent Peter Celnicker, whose investor clients were clamoring for the units.

Celnicker was elated when they snagged two — priced at $390,000 and $465,000 — and plopped down two $15,000 certified checks to reserve the unbuilt units.

"Fabulous deal," the Delray Beach, Fla., agent pronounced. "Fabulous."

Two days later a woman who had not fared so fabulously offered Celnicker's clients $50,000 per reservation at the sold-out development. Celnicker said they turned her down flat, with the expectation of flipping their deals for sweeter profits.

Flipping is the practice of buying properties for resale, an investment strategy that has become wildly popular across the country. Disappointed with the stock market and dazzled by double-digit property-appreciation rates, amateur investors — apparently of every income stripe — are investing in real estate in droves.

They are snapping up everything from condo conversions in Chicago suburbs to new three-bedroom ranch homes in the Arizona desert.

Ordinary people, armed with bargain mortgages, pooled family savings and cashed-out home equity, are buying for investment at levels that are starting to worry economic analysts.

By one count investors bought nearly 8.5 percent of all the homes sold in last year's record market, according to Loan Performance, a California housing data firm. In 2000, the company estimated investor buyers were 5.8 percent of the market.

Their effects on escalating home prices are beginning to be noticed.

In December, Federal Reserve officials warned that they were concerned about speculative demand affecting housing prices and said they were watching some regions' activity closely.

"There are a couple of areas that look really scary, in terms of their share of the market," David Seiders, chief economist of the National Association of Home Builders, said of investors in the national picture. Seiders said, however, that investor activity in this region seems to be in balance.

Others agree.

"I think for the Midwest, we're on an even keel," said Erik Doersching, vice president of Tracy Cross & Associates, a Schaumburg, Ill., firm that tracks home-building data. "Especially compared to whatever else is happening elsewhere."

Last year speculators went into overdrive in Las Vegas, Phoenix, many parts of California and southern Florida, buying perhaps 15 percent or more of homes sold.

In those areas people who were buying a home as a residence complained they were being pushed out of the market.

A flood of investor-owned houses can also depress prices when a market loses its sizzle.

If price-appreciation rates slow — or worse, decline — speculators have more freedom to cut their asking price, sell quickly and get out. Left behind are occupant homeowners, who often must realize a certain profit to buy their next house.

Today some developers court investor interest, Gail Lissner of Appraisal Research Counselors, said.

At least one, however, shuns them.

"Speculators are also our competition (when they resell) while I still may be trying to sell in my building," said Alan Lev, president of the Belgravia Group, a Chicago-area developer whose sales contracts require buyers to live in its buildings. "Besides, our construction lenders are starting to look at (investor buyers) and say those are not good sales."

Overall, the speculation picture is muddy because there is no single definition of "investor." For example, vacation homes count as investments in some databases, not others. Parents who buy condos to house their college-student children may not be trackable. Many investments are bought by landlords for the long term.

Or they're consumers who see bricks and mortar as an alternative to stock market nosedives and wimpy returns on bank CDs.