Saturday, March 19, 2005

Ordinary people eagerly speculate on real estate

They've flipped! And they may again

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.

Waiting for big profit

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 down the road.

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 the double-digit property appreciation rates, amateurs — apparently of every income stripe — are investing in real estate.

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.

Numbers hard to track

Their numbers are hard to track, but 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 — not to mention what might happen to such deals in a real estate "bubble" — 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' closely.

"There are a couple of areas that look really scary, in terms of their share of the market," said David Seiders, chief economist of the National Association of Home Builders.

Las Vegas a hot target

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. People who were buying homes as residences complained that they were being pushed out of the market.

Besides driving up housing prices and assessments, a flood of investor-owned houses can depress prices when a market loses its sizzle.

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