Wealthy Chinese and the U.S. Real Estate Market

SF houses





Chinese Buying in Several U.S. Markets

It's no secret that Chinese have been buying real estate in the U.S., particularly since the housing crash, and sending housing prices up. Buyers from China ranked first among other countries buying properties in the U.S.  Among cities in the news are Seattle (and the surrounding areas), Portland, San Francisco, New York, Cambridge, D.C. and Miami; and Vancouver outside of the U.S.

While many wealthy Chinese focus on high-end properties, there are also many Chinese buying properties in the middle and high-middle price range. One study determined that the average price paid by Chinese buyers was about $832,000 in 2015 compared to about $500,000 for other international buyers.

Chinese Buyers Affect Local Prices and Inventory

The resulting increase in housing prices and affects on supply upsets many markets "with local would-be buyers increasingly being disconnected from the economies of their own cities" according to a Washington Post article. Income levels and the local economy become less important. "The torrent of cash is fueling sharply rising prices and dwindling housing supply while keeping homeownership out of reach of first-time buyers in some of the country’s most important real estate markets." It is estimated that buyers from China account for 15-20% of the San Francisco real estate market, for example.

According to the Washington Post article:

Factors that typically influence real estate sales in most places, such as income levels and the strength of local economies, do not mean as much when large numbers of outside buyers from places such as China invade a market, says Nela Richardson, chief economist at national realty brokerage Redfin. “Local fundamentals aren’t necessarily the driving factors when that happens,” Richardson says. “That affects buyers who live in these places and can lead to locals essentially being priced out of their own markets.”

Outlying Areas are Affected as Well

As well as high visibility markets like New York, Chinese are also buying in some of the outlying, less expensive, areas like Queens and Brooklyn. They are competing with local buyers in the middle price range of the market and make it difficult for local buyers looking to purchase their first home.

Questions to ask: What happens when the Chinese buyers taper off buying? What is the risk that the Chinese government puts more controls on money leaving China? How are cities changing where many can't afford a home due to prices rising in such an unbalanced manner? I read one story about teachers in San Francisco leaving because they could not afford the high rental rates.

In the final analysis, as a real estate investor, you want to capture these periods of appreciation. Using the Housing Price Trends system you would have received a "Buy" signal in 2Q of 2013 for San Francisco, for example. Prices started to increase in the middle of 2012, but it is always very risky to buy just because prices increase in one quarter. Smart investors who follow Housing Price Trends know you reduce risk by letting the housing market establish a trend. And it takes a little time for a positive trend to get established.

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