The Party Is Over: Foreign Interest In US Real Estate Tumbles To 3 Year Lows

Tyler Durden's picture

The housing market in key regions across the United States has been cooling, something that we have covered extensively, especially when it comes to New York, Miami, and California.

Any hopes that foreign buyers would continue to rush into the US tripping over themselves for an opportunity to park money in a "safe" real estate asset have been dashed according to a survey by the National Association of Realtors released Wednesday.

Purchases of US residential real estate by foreigners fell 1.3% y/y from $103.9bn in 2015 to $102.6bn in 2016 (year ended March 2016). As shown below, the main buyer by dollar volume was China, contributing nearly 27% of the total.

Breaking down the data further, purchases by foreigners who aren't residents of the US fell by $10bn y/y to $44bn, the lowest level since 2013.

Even as foreign buyers continued to pay huge premiums, the average purchase price paid by foreign buyers declined substantially y/y as well.

As the WSJ notes, even as foreign buyers make up a small part of the market overall, luxury residential builders in Miami, Manhattan, and parts of California could take a hit if (and when) this trend continues.

Here are the main destinations of foreign real estate purchases:

We have focused quite a bit on China's capital outflows, and it comes as no surprise that the markets we discussed are where the NAR shows China buying, specifically California.

Another interesting point along those lines, is the fact that Chinese buyers pay predominantly in cash - interestingly, so does Canada.

* * *

All of this reiterates what we have been documenting for quite some time now, namely that China capital outflow continues to be directed to the US real estate market, and that the overall trend of foreign buyers purchasing in the US is slowing, thus pulling the rug out from underneath those soaring real estate prices in major markets. The pain will continue as the funds slow, and the supply glut becomes even more of a factor as a result.

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umdesch4's picture

"Another interesting point along those lines, is the fact that Chinese buyers pay predominantly in cash - interestingly, so does Canada."

That is interesting. The only people up here I know who could come up with that kind of cash, are the people who owned property in places like Vancouver, or Toronto, and sold them to Chinese buyers, for boatloads of cash.

Panic Mode's picture

They can't spend the cash in China, so they part it outside.

Paul Kersey's picture

 

The parties may be die down in New York, Miami, and California, but with the power of world wide central banking, those parties could be in full swing again, and grow even larger than ever. As foreign buyers leave the party, the the American home buyers could arrive in stretch limos. Take Japan, a country with a seriously shrinking population and a real estate market that had all but died. Today, Tokyo residential real estate sales are on fire, now that mortgages rates have plunged to 1.5%. And it ain’t just the residential market. Since 2013, the Japanese commercial RE market has been one of the hottest in the world, and that market has no shortage of foreign buyers, even with Japan's super strong currency. Now just watch as US mortgage rates start to go Japanese. There will be a bonanza of home sales and refis. The banks will make bank.


 

Remember, when the BOJ started monetizing government bonds in 1999, American bankers were astonished. However, nine years later, the Fed started monetizing Treasuries. Japan went NIRP, then European countries went NIRP. Will anyone be surprised the the Fed does the same thing?


 

It’s all very simple. US mortgage rates dip below 2%, everybody with a mortgage refinances, payments go down and discretionary spending goes up along with GDP. The bubble gets reinflated and the New Your, Miami and California housing gluts disappear. And if sub 2% mortgages don’t bring payments down far enough, just throw in mortgages amortized for 40 years. It won’t cost $1,000 a month to finance a $300,000 house, or $3,000 a month to finance a $900,000 SF condo. That’s cheaper than rent. Trust me, the Fed’s got a better imagination than I do, so we shouldn't underestimate the creativity and power of our international banking rulers when it comes to creating new and even greater bubbles.

 

We've seen real estate bubbles inflate and deflate, again and again, in NY, Miami and Cali. The 1927 bursting of the South Florida real estate bubble brought down the prices of real estate in the whole country, and those RE prices didn't come back again until 1954. But they did come back. The party's not over until the Fed lady sings.

The Real Tony's picture

The only foreign buyers are the fucking Chinks and when the Yuan drops far enough all the smart money will have left China. We are near that point now. As you can see buying is dropping off. The other reason is the people who didn't get their money out of China already well their money is worth less and less as the Yuan devalues against the U.S. dollar. This will result is less and less Chinese buying U.S. real estate in the future.

Houses Depreciate's picture

Keep in mind housing demand is at 20 year lows and falling.

 

Get what you can get for your house today because it's going to be less tomorrow for decades to come.

Panic Mode's picture

It's okay. The Fed will buy the rest.

Déjà view's picture

Flush out more accounts in foreign tax havens, Delaware, Nevada, South Dakota & Wyoming LLC's...

aurum4040's picture

1% drop , yawn ...not news

The Real Tony's picture

All that matters is the value of the Yuan. Anyone looking to short the real estate sector just look to the value of the Yuan. If the Yuan keeps falling which is very likely American real estate will fall further and further in price since all the prices are skewed by Seattle and San Francisco. Prices in Seattle and San Francisco will soon move into a free-fall as the Yuan moves lower in price vis-a-vis the U.S. dollar.

Houses Depreciate's picture

Housing prices have a long way to fall. A very long way to fall. Especially on the coasts.

SweetDougisaTwat's picture

You tried so hard to be clever and funny with your "Yuan?" pun.  Good for you.  Here is your lollipop.

Lost in translation's picture

< market crash after November election

< market crash before November election (please specify the month you think it will happen: August, Sept, Oct)

The Real Tony's picture

October should be the worst month, I'm waiting until October 03 this year or the last trading day of September to short Teck Corporation down to 5 bucks Canadian. I figure it will hit that target late in January 2017 as the stock market should be crushed to the downside in December 2016 and January 2017.

Lost in translation's picture

Thanks for taking the time to post, Tony. I appreciate hearing your perspective on the approaching autumn...

Take care, friend

Byte Me's picture

"It's resting..."

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Byte Me Jul 8, 2016 7:58 AM

Its too hot to buy a house...

Maestro Maestro's picture

The Chinese are stupid.

The Chinese steal from other Chinese only to take that money and park it in their enemys' the Americans' backyard.

The Chinese will not have access to, nor rights over that real estate when the chips are down.

They'll go to jail and face capital punishment over their crimes, to boot.

What kind of assholes are these Chinamen?

I certainly can't see any semblance of 3000-year-old wisdom in these Chinese idiocies.

EddieLomax's picture

Yep, and it is a certainty that eventually as the wealth parked there grows government will be tempted to tax it.

This has happened in the UK with the buy-to-let  boom, eventually government cannot resist taking a cut of the profits, it is just too lucrative and as a bonus is hurts too few voters, I expect this will go on overdrive if someone fairly socialist got into power since they needs large tax rises and landlords are sitting targets.

clambake's picture

Get your nose out of your navel bud. That's not Chinese you been looking at, it's body lice.

zeroboris's picture

These Chinese are thieves. Thieves don't care about anything but themselves. Russian thieves, for example, hide stolen money in London with confidence that Brits not only refuse return money to owner but give an asylum to a thieve if the stolen sum is big enough.

 

Break_the_Bank's picture

The Russians got burned in Cyprus. They were easy targets when Cyprus banks had to save themselves. 

The Real Tony's picture

That's the Chinks good qualities. There isn't enough space on this page to list their bad qualities.

DaBears's picture

CCP extended families, their insider buddies, those that bribed CCP to give them "investment" loans from State owned banks, with no intention of paying back those loans.

fjcruiserdxb's picture

US real estate a safe heaven ??? a fool and his money soon to be parted.