Foreign investment is one of the foundations of the US real estate that has been especially important in recent years. Despite the fact that some would like to downplay the data and the influence of foreign investors, there is no denying that foreign investment makes up a small portion of the total sales in the housing market. What makes this trend interesting is that foreign money is limited to only a few targeted areas, or markets in this case.
Canada, for instance, loves investing in Arizona, while Chinese investors enjoy making California an inflated market, as if it was not already. In fact, China is the top international buyer in the U.S. housing market. While they may not be buying property in Highland Park or other hipster towns in California, they have invested a large pool of money in San Marino. We will take a look at the onset of foreign investment in local real estate markets, inspired from a report published by the National Association of Realtors (NAR).
With increasing inventory and subsequent volumes of sales, foreign investors are driving real estate in specific markets. Despite the fact that total sales are deteriorating in 2015, the dollar volume is certainly going up, pushing the median home prices further.
The data is interesting to say the least. In 2010 the sales volume was the highest, at 300,600, despite that the U.S. was still experiencing the housing market crash. While 2015 has not been a highlight year, it is worth noting that spending is now at a record high, at 104 billion. Foreign buyers are willing to pay more than the average local home buyer, thus pushing the median home price further.
Long Term Implications
According to the NAR, China, Canada, and the UK are the biggest buyers in the U.S. real estate. These powers contribute to the shifting trajectory in price and inventory in specific markets. What is even more striking is that the median home price for a local U.S. buyer in 2014 was $255,600, which was almost half of the $499,600 that foreign buyers paid. Only six years ago the difference was just $105,200.
It is clear from the buying activity of foreign investors that the domestic homebuyers are having difficulty keeping up with the rising prices. Of the countries that invest the most in U.S. real estate, China makes the largest contribution. They are closely followed by Canada, India, Mexico, and the U.K. The U.K., once a large player in U.S. real estate during 2010, is no longer spending top dollar in the local market. The escalating median home prices in California, along with the volatile potential of the local housing market in the UK are some of the factors discouraging investment from the region.
Asia is currently the largest investor in California, as Chinese buyers make up the bulk of real estate transactions. Primarily 39% of the buying is in primary residence with 23% in residential rentals.
The residential rental buying from foreign investors is certainly going to increase, given how fruitful the Californian market is for landlords. For Californians, this only means that buying a home, despite the ease in borrowing regulations, will once more become a fantasy. As for other markets around California, do not be surprised to see investment in these markets once the housing bubble becomes an impending reality in the region.
This seems like a dismal reality for Californians, but in actuality it is a gentle push to action. If you are looking to buy property in California, then work fast. Find the property or properties that you wish to purchase and act after doing your research and making your plans. If you want to sell your property in California, you could wait and see if the existing low inventory and foreign investors will continue to drive prices up. You may receive top dollar for your property, especially if they can rent it out. On the other hand there are many other factors to consider that may suggest selling now if you can. One is the possible of higher mortgage interest rates which will put downward pressure on price. The other is potentially of major stock market correction which could start the domino effect driving up rates, increasing unemployment and creating uncertainty. This will have a negative impact on home values and potentially decrease demand. In order to have the right environment to sell your home and receive the highest price for it we must have a stable economy with low interest rates, low employment and stable stock market. This is the perfect environment for great demand for real estate. Today all three factors are at risk. Want to know more? Go to www.thepowerisnow.com and join the buyer’s and seller’s club for free to get free support, consultation and information from me and my team. You have the power to change your life now because The Power Is Now.
Eric Lawrence Frazier MBA
President and CEO