Two years ago, there seemed to be no stopping the Inland region's single-family home market, but not everyone who was buying houses in that red-hot market wanted to live in those properties.

For months, Riverside and San Bernardino counties put up record numbers for single-family home sales and median prices, according to DataQuick Information System Inc. in La Jolla, which issues monthly reports on Southern California's real estate submarkets.

Not only were both counties getting their share of first-time buyers, they were also attracting "spillover" buyers from Orange and Los Angeles counties.

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Photo By Larry Rose

Bruce Norris ,president of the Norris Group, in front of a Riverside home that is currently on the market.

With that boom came an influx of speculative buyers, investors who purchased homes to sell them instead of live in them.

Their plan was to wait at least a year to avoid the capital gains tax and other penalties that are levied when a home is sold within 12 months of purchase, then sell the property while demand was still high and prices were rising every month.

Speculative home buyers defend the practice, saying they improve neighborhoods when they buy and fix up properties.

But some home builders, who build houses for families to buy and live in, take a dim view of home speculators.

"You put a clause in your contract with the buyer that says the buyer will live in the house, but in the end there's no way to enforce it," said Wes Keusder, owner and president of Keusder Enterprises and EHI in Costa Mesa, which is building 50 single-family houses in the Temecula-Wildomar area.

"They tell you they're buying it for their son or daughter, but they aren't.. And there isn't much you can do about it."

Speculative home buying peaked in Riverside and San Bernardino counties about two years ago, said Bruce Norris, a speculative home buyer and president of The Norris Group, a real estate investment and consulting firm in Riverside.

"There was incredible pressure on home builders," Norris said. "They would build 64 units and 64 speculative buyers would be standing there waiting to buy them. The speculators got in on the first phase and the trend took off from there. But they disappeared when the market started to drop."

Speculative home buying all but vanished from the local housing market about one year ago, when the market began to slip, according to analysts and homebuilders familiar with Inland region housing.

But the effects of "spec" buying in Riverside and San Bernardino counties linger to this day.

Local economist John Husing says speculative buying is one reason the Inland housing market fell apart and remains sluggish, because speculative buyers helped drive home prices to "absurd" levels.

"The speculators used subprime mortgages to buy houses and flip them, and that drove home prices to places they didn't belong," Husing said. "I would say the worst of it was in late 2004 and early 2005. The message to a lot of [families] that wanted to buy a house was they couldn't have one."

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Photo By Larry Rose

Bruce Norris leads a class in real estate investing.

Husing acknowledged that other factors -- including no-money-down loans and an influx of young first-time home buyers -- played a role in driving up local housing prices, but he believes rampant spec buying played a part as well.

"It was a like a Ponzi scheme for a while," he said.

But when the Inland housing market began to drop, a lot of the speculators ended up in foreclosure on their properties.

"Maybe the biggest legacy of the speculative buying craze is the number of vacant houses that are out there today," said John Frith, spokesman for the non-profit California Building Industry Association in Sacramento. "About 10% of the single-family homes in the Inland region today are vacant, which is about twice as much as normal. It's about a 10-month supply of houses for builders to sell."

An estimated 2.3 million single-family homes were sold as investment properties nationwide during 2005, but that number dropped to about 1.6 million last year, according to the National Association of Realtors.

In March of 2005, at the national height of the speculative home buying cycle, the non-profit in Washington, D.C., issued a press release that warned would-be speculators about the dangers of gambling on the housing market, said Walter Molony, spokesman for the association.

"It's strictly for get-rich-quick artists," Molony said. "If you try to get rich in real estate you'll get burned. Speculating, or flipping, only works in a very narrow set of circumstances."

But speculative home buying isn't risky if the speculator knows how to read the market and determine when to buy and when to get out, Norris said.

"To blame the state of the housing market on speculative buying is nonsense," Norris said. "If it's done the right way, speculative buying is a positive thing, not just for the buyer but for the market. Isn't that the American dream, to invest money and make a profit?"

Speculative buying is part of any housing market, Norris said

"If a neighborhood has a cluster of homes that are supposed to be owner occupied and they're owned by speculators, then that probably isn't a good thing." Norris said. "But when I buy a property and fix it up, I'm improving the neighborhood, I'm not hurting it."

Norris , who recently sold a spec home in Ranch Cucamonga for a $120,000 profit, disputed those who say speculative home buying has contributed to vacancy rates in the Inland region.

"I checked Riverside County recently and found 117 foreclosure filings for one day," he said. "Two of those were non-owner-occupied filings."

Spec buying can also work in a slow market, Norris said. "If it's a boom I sell it and wait for the price to go up," he said. "The way the market is now, I buy it and sell it as fast as I can."