The Wall Street Journal is reporting that speculative buying played a major role in the recent run-up of real estate prices in Florida, especially southwest Florida. Ya think?

Were the speculators the cause, or the effect of quickly appreciating real estate in Florida. Which came first, the speculators or the price increases? Were the speculators just fuel added to the already hot fire?

We know that there were many people like Marjorie Dresner, who were seemingly out of control buying up anything that they deemed as a good investment, and are now holding many properties valued at much less than was paid.

Ms. Dresner’s statement as quoted by the The WSJ shows the general mindset of many speculative buyers: “The sellers can ask whatever, but it’s up to the banks in how they appraise it,” she says. “I never overpaid for anything.” Three examples of homes she purchased and now cannot sell for anywhere close to the price paid are given.

Many investors were buying thinking that prices can’t possibly go down. How can I lose? It had been a long time since Florida real estate prices had gone down. There were 900 people per day, on average, moving to Florida. Don’t they need somewhere to live?

But the fire did run out of fuel and examples of bad timing of speculative buying are visible all across Florida and elsewhere. The fire also had many extinguishers in the form of rising costs to borrow, rising insurance rates, rising property taxes, etc. Less $$$ were available for the P and I portion of the PITI.

So the latest about face of the Florida real estate market serves as a lesson for those who choose to buy speculatively betting that prices will continue to rise and that they’ll be able to easily find a buyer at a higher price. It’s a risky bet that some will surely lose.

See: Condos Suck