[quote=CA renter][quote=SK in CV][quote=harvey][quote=CA renter]Speculators don’t provide any similar benefits.[/quote]
Then why does anybody transact with them?[/quote]
Taken together, these two comments are a perfect example of begging the question. The claim that speculators don’t provide any benefits in the real estate market is presumptive. They do provide a service. Real estate speculators both buy from a willing seller, and sell to a willing buyer. With very minor exceptions, real estate speculators have never controlled markets as, for instance, the Hunt brothers controlled the silver market 35 years ago. That doesn’t mean that they (speculators) have no effect on market prices. They do. Just as grocery stores and Costco have en effect on prices.[/quote]
The problem is that speculators often have an advantage over organic buyers and sellers. Take, for instance, the housing market when the bubble burst. Who had the best access to massive amounts of foreclosures? The speculators did. They even managed to limit the access to this inventory by requiring very high qualifications that very few individuals could meet in order to purchase REO inventory. There were many buyers (also speculators, to a large extent) who were fully qualified to purchase REOs from different sources, but were excluded because they didn’t have the right connections. At the tail end was Jane and Joe Sixpack’s access to affordable housing, always getting in and out AFTER the well-connected few have made their purchases and sales.
Speculators have advantages that regular buyers and sellers don’t — business networks (cronyism), access to capital (also largely because of their connections), access to privileged information, etc. If they didn’t have these advantages they wouldn’t make up such a huge part of the market, and the FIRE sector wouldn’t be such a dominant player our economy.
Cash buyers in RE (not all, but most of them are speculators) — over half of the market:
Speculators make up the majority of traders in the stock markets as well as the commodities and forex markets (~80% speculation in FOREX, IIRC), to name a few.
To suggest that speculation doesn’t cause problems is like saying that concert ticket scalpers aren’t a problem. Nobody in their right mind would claim that. Both the sellers and the buyers are losing on almost every transaction in which a scalper is involved. Additionally, as with any market, the scalper/speculator is going to be most active on the buy side when they anticipate unusually high demand/restricted supply, which exacerbates pricing volatility. In markets where they can short, they move markets down when prices are already expected to go down, making the drops larger (and the rebound sharper/faster when they have to buy to close positions).
IMO, speculators might be buyers and sellers, but they do not provide any real benefits to society at large. Ever penny made by a speculator is lost to a buyer and/or a seller. That’s why I say speculation is zero-sum.[/quote]
I guess, if you define speculator as anyone who buys property with the expectation that the value will go up, then you’re right. Speculators cornered the market. That would include those with intention of flipping, intermediate and long-term landlords and those acquiring property to occupy. So everyone who buys property is a speculator. Yep, they cornered the market.
As an aside, debt holders, including agency debt-holders and guarantors, didn’t bundle distressed assets to do a favor for investors. It wasn’t an inside deal to funnel profits to special friends. It was the only efficient way for them to liquidate distressed inventory. Those buyers are the Marshalls, Home Goods and Big Lots of the real estate business. Is Big Lots an evil blight on the retail market?
