Chinese Real Estate Investors Increasingly Targeting Big Cities With Strong Education Programs

Over the past few years, the United States real estate market has experienced an influx of foreign investment, with Chinese buyers continuing to outpace all other foreign real estate investors. While there has already been a great deal of discussion and analyses regarding the multitude of factors driving Chinese investors to put their money in U.S. real estate, until recently much less was known about why these investors ultimately prefer one particular geographic location over another.

Recognizing the inherent value associated with developing a clear understanding of the various factors at play during the decision-making processes employed by foreign real estate investors, a number of recent studies have identified several key reasons behind regional real estate demand. As a result, the data collected through these studies has made it possible to create a projection system delineating the specific U.S. cities Chinese real estate investors are most likely to target over the course of the next year: Los Angeles, San Francisco, Boston, New York, and Miami.

The projection is quite revealing for a number of reasons, including the fact that even a cursory review of the characteristics common among the five cities highlights the factors Chinese real estate investors find most appealing. In addition to featuring the nation’s most prominent cultural centers and strongest local economies, each of the five cities listed in the projection is also known for offering outstanding educational opportunities to its residents.

Whether it is the proximity to so many of the elite colleges and universities located in the city of Boston or access to one of the many outstanding public campuses associated with the University of California, Chinese investors clearly value educational opportunities when selecting real estate properties (obviously, New York and Miami are also home to outstanding academic institutions as well).

Of course, there are other factors to consider beyond access to exceptional academic opportunities, as Chinese investors also weigh the value of U.S. investment properties relative to international properties. The combination of its excellent public school system and comparatively low — in terms of both national and international prices — property costs are among the primary reasons that Los Angeles is expected to be the top housing market targeted by Chinese investors over the next year or so.

Weather also plays an important role as Chinese investors attempt to identify the ideal region for a real estate investment, so it should not come as much of a surprise that warm-weather climates like Miami and Los Angeles are among the top options in the United States. A lack of year-round sunshine is not necessarily a deterrent, however, as each city’s economic outlook as well as its unique cultural makeup also figure prominently among Chinese investors seeking U.S. real estate.

With all else being equal, Chinese investors appear most interested in properties that range in cost from $300,000 to $700,000. Even though property values vary widely among the five cities most likely to appeal to Chinese real estate investors during the year that follows, a price range of $300,000 to $700,000 still ensures access to a broad array of options in the part of the country that each individual investor ultimately concludes as most appealing according to their own personal preferences.

Nearly 5 Million Apartments Needed in US by 2030

Several critical factors — including an aging population, international immigration, and couples increasingly choosing to delay marriage — have resulted in projections indicating a need for the United States to add close to 5 million more apartments by 2030 in order to meet the demands of its rapidly changing population. This is according to a recent study conducted on behalf of the NMHC (National Multifamily Housing Council) and the NAA (National Apartment Association).

As it currently stands, the approximately 39 million people dwelling in apartments is already stressing the capacity of the apartment industry, a product of the fact that, over the past five years, an average of one million new renter households formed each year. Based on those figures, the United States needs to create 325,000 new apartment homes per year in order to meet the projections for future demand. The fact that an average of only 244,000 new apartment homes were built per year from 2012 to 2016 illustrates some of the inherent challenges associated with the growing demand for apartment housing.

It’s important to take a closer look at some of the underlying factors driving the rapid increases in demand for apartment homes in the United States. Since life events play such an important role in driving home purchases, the fact that so many Americans are waiting longer to get married is affecting the level of demand for apartment homes. Married couples with children account for less than 20 percent of households in the United States, a 25-percent drop compared to 1960.

The aging population of the United States is also contributing to the rising demand for apartment homes, as the research conducted by the NMHC and NAA indicate that people 55 and older will be responsible for over 30 percent of future rental apartment homes. Over the last 10 years, the demographic of people age 45 or older made up more than 50 percent of the net increase in rental apartment households, a trend that is expected to continue going forward.

Immigration will also have a substantial impact, but disproportionately so in the border states: 51 percent of all population growth in the US is expected to come from immigration, which will in turn drive the increased demand for apartment housing across the country.

Although the entire country should expect to be affected by the changing population and the growing demand for apartment housing, certain regions of the country are likely to experience greater increases when compared to others. Western states, along with Texas, North Carolina, and Florida, should expect to see the sharpest increase in demand for rental apartment housing through 2030, particularly in cities like Austin, Raleigh, and Orlando.

 

Sharp Upward Trend Continues in Toronto Housing Market

The United States is not the only nation experiencing the return of a booming real estate market: Our neighbors to the north are also in the midst of a similarly extended surge in the marketplace, and it is the renewed strength of the Canadian economy that has powered this upward trend in the average price of existing home sales. Our analyses indicate Toronto is perhaps the most salient example highlighting this continued upward trend, particularly since the city’s average home sale price checked in at $1.2 million in the last month, increasing at a rate representing a 28-year high.

After reviewing each category of housing within Toronto’s city limits — including detached homes, condominiums, and townhouses — it is evident that the sharp increase in the average sale price applies more or less equally to the different types of housing. Even with the 33-percent increase in prices across all housing categories encouraging a 15-percent increase in new listings put on the market, the Toronto housing supply still remains limited by any measure.

Although the sudden increase in equity would lead most economists to predict a continued increase in the number of real estate listings — thereby introducing more balance within the market — our research indicates that many homeowners are still somewhat reluctant to cash in on their gains by putting their home on the market. It is somewhat ironic, but here at Tweed Economics we believe this might be the product of the limited housing supply leaving few good options for potential sellers who wish to remain in the city of Toronto.

City officials are looking at the limited supply of real estate as an issue that may need to be addressed through some sort of government intervention. Throughout our many years working in similar markets in which limited supply issues can be overcome with off-market expertise, intervention by government entities — despite wholly good intentions — all too often leads to unintended consequences that only exacerbate an existing issue or create new, more complex issues.

Various city officials have intimated potential steps they might take to intervene, citing the current lack of affordable housing as a deterrent for first-time homebuyers who wish to live and work in Toronto. This is certainly problematic, and city officials are right to be concerned about a continued lack of supply preventing potential buyers from entering the real estate market. Without first identifying the precipitating factors and understanding how each of these factors influences the market, outside intervention will almost certainly lead to a host of newer and more complicated problems for city officials to handle.

As Toronto city officials discuss the possibility of implementing a vacant-home tax or a foreign-buyers levy in the hopes of reducing real estate speculation, it’s worth pointing out that it is typically ideal to simply allow the market to self-correct. With home values continuing to soar in Toronto, it seems likely that potential sellers in the city will ultimately decide to take advantage of a strong marketplace rather than standing on the sidelines as others reap the rewards of the sharp rise in home equity.

References:

https://www.theglobeandmail.com/real-estate/greater-toronto-area-faces-looming-jump-in-housing-prices-royal-lepage/article33589023

https://www.bloomberg.com/news/articles/2017-04-05/toronto-home-prices-jump-33-in-march-as-market-tightens

 

Trump’s Win Could Spark US Housing Boom, Says Yale Economist

 

Yale economist Robert Shiller believes that Donald Trump’s surprise presidential win could prove a “turning point” that catalyzes a housing boom in the US. The Nobel laureate further argued that the real estate billionaire’s landmark election indicated a shift in American attitudes toward wealth and conspicuous consumption and away from modesty and prudence.

“We used to be more into modest living,” Shiller told CNBC, with regard to the post-Recession years. “Now people are thinking, ‘[that] doesn’t work.’ You know? You have to live big-league and you’re on your way.”

While the data aren’t there to support his cultural observations, Shiller noted that such excitement and attitudes could be seen at Trump rallies and in the stock markets, which rallied following the news of Trump’s win. Indeed, there is an emerging belief that Trump’s administration may usher in preoccupation with big living and materialism, and an aspirational culture reminiscent of the 1980s, according to CNBC.com.

Shiller speculated these attitudinal changes could, in turn, stimulate spending in the housing market: “Trump is a real estate man, right? He talks about living big, living large. I can imagine that this will boost housing demand as well, among at least those who are excited by Trump,” he said to CNBC.

Shiller’s statements came on the same day that the S&P CoreLogic Case-Shiller data came out, revealing that the 20-city property values index had risen 5.1% year-over-year in October 2016, with each of the cities seeing year-on-year gains. The Case-Shiller U.S. National Home Price Index soared by 5.6% during the same month, marking the highest margin of growth since 2014. US home prices have risen steadily due to increasing demand, higher employment, and rising incomes.

“I think we’re at a turning point. The numbers that we’re reporting today are October, before the Trump election, and everything looks different now,” the eponymous Shiller told Bloomberg Television. “There might be a Trump boom coming.”

Shiller also hastened to add that he was merely “wondering” about rather than forecasting a boom, given the uncertainty surrounding Trump’s policy positions.

Trump campaigned successfully on an economic platform of lower taxes, deregulation, and massive investment in infrastructure, all of which spurred palpable excitement among investors. The Dow rose 14.4% in 2016 whereas the S&P grew by 10.8%. That being said, Shiller warned that like Coolidge, Trump may preside over a short-lived era of American prosperity which ends badly. 

References:

https://www.bloomberg.com/news/articles/2016-12-27/trump-win-could-usher-in-boom-for-u-s-housing-says-shiller

http://www.cnbc.com/2016/12/21/americans-want-to-live-big-in-trump-era-nobel-prize-winner-says.html

https://www.bloomberg.com/news/articles/2016-12-27/home-prices-in-20-u-s-cities-increased-5-1-in-october

http://www.newsmax.com/Finance/Economy/robert-shiller-donald-trump-living-large/2016/12/24/id/765471/

US Luxury Homes Sales Rise Against Expectations

Against the expectations of observers, the higher-end of the real estate market has reported continued gains as sales of luxury homes rise, even as housing starts have grown to accommodated entry-level buyers. The Wall Street Journal has cited a survey by John Burns Real Estate Consulting showing that homes sales above $600,000 have risen in 37 of 43 counties, across 16 states.

Of the markets that were surveyed, luxury home sales grew by 10% in the last 12 months. Third quarter home sales in that price range only grew 5% year over year, however, sales increases were distributed throughout every price category, from the $600,000 to $1.5 million-plus price segments. The $1.1 million to $1.2 million segment experienced a 10% spike in sales, whereas the $1 million to $1.1 million category saw 4% growth. Whereas the luxury home starts priced at $1 million-plus fell precipitously by 41.6% to 1,762 last year, according to the National Association of Home Builders, that number is recovering along with the rest of the real estate market.

Toll Brothers, a US luxury home builder reported revenue growth for the fifth quarter in a row, with orders surging by 20.3% to 1,728 homes in the fourth quarter.

“We are encouraged as we look to FY 2017,” Toll Brothers Chief Executive Douglas Yearley said in a statement. “We are seeing positive demand trends in many regions.”

Higher home prices have also been an encouraging sign for luxury home builders. Toll Brothers reported that average price of homes sold grew to $834,000 during the fourth quarter, up from $789,700 a year earlier. Toll Brothers sold a total of 2,224 homes during that quarter, up from 1,820 a year prior, driving revenue increases of 29.1% to $1.86 billion. The company has forecast that it will build between 1,000 and 1,250 homes at the $750,000 to $780,000 price range during this quarter.

On the other hand, the ultra-high end of the luxury market has grown sluggish, according to Forbes, with the market for $100 million-plus homes softening, marking a reversal of the prevailing trend in recent years. Ultra-luxury home construction in New York and Miami have dwindled This may precipitate a belated focus on affordable and starter home building, given that the high-end market was the first to rebound after the recession.

References:

http://www.constructiondive.com/news/report-us-luxury-home-sales-continue-to-post-gains/432260/

http://www.wsj.com/articles/luxury-home-sales-in-u-s-continue-to-rise-1481292531

http://www.constructiondive.com/news/report-us-luxury-home-sales-continue-to-post-gains/432260/

http://www.cnbc.com/2016/12/06/pricier-home-prices-spark-surge-in-toll-brothers-revenue.html