This
year, for the first time, the Chinese surpassed
Canadians as the top investors in American residential real estate.
According to the NAR, during the 12-month period that ended
in March,
investors
from China (Mainland China, Taiwan and Hong Kong combined) invested $22 billion in the U.S. housing market.
Canadians,
the perennial leader in foreign investment, spent about
$13.8 billion.
While
this upsurge was difficult to predict, the Chinese have good reason to invest
in U.S. real estate, and the impact is being felt in the California, Washington
and New York markets, where more than half of China’s
investment dollars have gone.
Chinese
investors consider the U.S. market and the coastal cities of California to be
relatively inexpensive.
Housing
is expensive throughout China, a
nd is far more expensive than desirable
California markets like Los Angeles, San Francisco and San Diego.
Price is not the only attraction.
The
U.S. housing market offers consistently enforced contracts, legal transparency
and educational opportunities not available in their homelands.
So what does this mean for
homeowners and buyers?
In
markets like Indianapolis, Columbus and Kansas City, the impact is negligible.
Most
Chinese buyers are shopping with cash and doing so almost exclusively in
California, New York and Washington.
The $22 billion in Chinese investment in U.S. housing
is actually rather
small when compared to (in an avg. year) the total value of residential real estate transactions is approx. $1
trillion.
But
foreign buyers do have a large impact on specific markets, bringing relief to
coastal California homeowners stuck in upside-down mortgages.
In
the Bay Area, roughly 25-30% of mortgages were
underwater five years ago.
Currently
the percentage of underwater mortgages in the Bay Area
today is nearly zero.
Yet
the Bay Area also faces an affordability crisis.
What remains unclear is how much more capacity Chinese investors
have to influence housing in the U.S.
There
is no Chinese version of census and IRS data telling us how deep this well of
investors might be.
If
it turns out there are only 100,000 Chinese able to invest in American real
estate, the end of this cash influx will come to an end
soon.
If
there are 15 million, then this market could go on for a long time.
