Not only is there a serious lack of inventory in many parts of the US, there’s also a housing affordability issue at play. And depending on where you live, both of these matters combined spell trouble for the average American who is looking to get into the real estate market but can’t find the right property at the right price.
How much do foreign investors have to do with this scenario?
In 2015, Chinese buyers represented the biggest group of foreign home purchasers in the US. And while the foreign funds pouring into housing markets from overseas may be helping strengthen the economy in some areas of the US – including the midwest – they’re wreaking havoc on housing affordability and availability in dense areas like Manhattan and San Francisco. Demand is far outweighing supply in centers such as these, as are prices. Bidding wars are happening like crazy, making the situation an ugly one.
Chinese home buyers spent $28.6 billion on properties in the US from March 2014 to March 2015 – over twice the amount from just two years earlier. Local Chinese newspapers are even publishing an increasing number of American real estate listings placed directly by US-based agents.
Of course, foreign buyers such as those from China don’t make up the majority of real estate purchases in the US, but they do have a huge portion of the luxury real estate pie. In fact, one in 14 properties listed for $1 million or more is being bought by Chinese buyers.
According to a survey conducted by the National Association of Realtors (NAR), the average amount that Chinese buyers spend on a US home is $831,800 – that’s over three times the amount that Americans spend. And the fact all-cash deals are highly popular among this group is even more alarming. Specifically, 69 percent of home purchases by Chinese buyers are made entirely in cash.
How can the average American compete?
For the average domestic home buyer who typically needs a mortgage, the inrush of Chinese capital makes it that much more challenging in our current market. Even wealthy tech entrepreneurs that line Silicon Valley are being beaten out by millionaire Chinese buyers.
What’s Driving the Chinese to Snatch Up American Real Estate?
Many Chinese are buying properties in the US solely for investment purposes, and banking on the skyrocketing rents that are part and parcel of many of the country’s more densely populated city centers. Others are buying close to universities and colleges for their children, while some are buying real estate as a stepping stone to obtain green cards.
And others still are attempting to hedge their capital from the Chinese government.
While housing prices in many parts of the US are certainly expensive, they’re not even close to some of the price points Chinese residents see in places like Beijing, where the average price of a 900 square foot apartment is over US$560,000. And with the Chinese economy currently unstable, and the stock market experiencing dangerous volatility, it’s no wonder that those with cash are looking past their borders to buy.
With an increasingly global economy, perhaps it should come as no surprise that buyers are coming in from all ends of the planet. While foreign buyers from China might be making it more challenging for domestic buyers to make a play at US housing, you’d have to wonder how long will this ’trend’ will last.
The economic turmoil in China can’t last forever, and the economy and labor market here in the US are only gaining in strength. Hopefully, the issue of housing affordability and shortage in many areas throughout the US will fizzle out sooner rather than later.