Facebook investor and Russian billionaire Yuri Milner made worldwide headlines recently when he purchased a Los Altos Hills estate for a reported $100 million, the most expensive residential real estate deal in the U.S. But while Milner’s purchase caught the attention of reporters here at home and the paparazzi around the world, he’s not the only foreign buyer to be placing bets on the Bay Area housing market.
Silicon Valley, Hillsborough, San Francisco and other parts of the Bay are attracting growing interest from offshore investors these days. We’re seeing it in our own offices on the Peninsula and in Silicon Valley. The foreign buyers are usually looking for upscale, single-family homes and often pay for multi-million-dollar purchases in cash. Unlike Milner, most of the foreign buyers aren’t seeing their deals reported in the news media – and that’s just fine with them as they truly value their privacy.
The offshore buyers are buying here for a number of reasons, according to recent studies and our own agents who have represent them: U.S. homes are generally less expensive than comparable foreign properties. Investors understand that U.S. real estate prices are unusually low right now, and in the long run could be a great investment. Additionally, the U.S. is looked upon as a more secure and stabile place to own property. Finally, some buyers are concerned with the financial markets and believe that investing in real estate over the long run will be a much wiser investment.
Our Burlingame North Office had a number of recent sales to Chinese buyers – all for several million dollars and all in cash. The investors used profits from antiques, commodities and other investments to funnel into the real estate market. One Peninsula listing received seven offers – four of which were all-cash offers from China buyers. A Chinese investor, with family and interpreter in tow, bought two houses in Pebble Beach, one on 17 Mile Drive, another above The Lodge, for $7 million and $10 million in March.
What’s driving the Chinese interest in U.S. real estate? One of the fundamental reasons, we’re told, is that you can’t buy fee-simple real estate in China like you can in the U.S. As a result, no matter whether you’re purchasing a single-family home or a condo, you cannot own the land underneath your home. The land is always leasehold property held by the Chinese government.
Silicon Valley and the Bay Area are considered highly attractive to foreign investors. Obviously, having the world’s leading technology hub in our backyard doesn’t hurt. Our tech industry is attracting top-flight engineers and other highly educated, well-paid professionals from around the world. The growing field of tech startups and tech IPOs are attracting some of the world’s wealthiest investors. Having two world-class universities in Stanford and Cal has also proven to be a strong magnate, as we’ve noted in past columns. San Francisco and the Bay Area have always been popular destinations for people around the globe. And finally, real estate in the Bay Area has a long track record of being a good investment for patient buyers. These offshore buyers fully appreciate that.
A recent study by the National Association of Realtors found that international purchases in the U.S. surged by $16 billion last year, the highest gains in recent years. “The U.S. has always been a desirable place to own property and a profitable investment,” said NAR President Ron Phipps, “In recent years we have seen more and more foreign buyers coming here to take advantage of low prices and plentiful inventory.”
Recent international buyers came from 70 different countries, up from 53 countries the previous year. Canadians accounted for the largest percentage of international purchases with 23 percent, while Chinese buyers were second with nine percent. Tied for third were Mexico, the U.K., and India. Argentina and Brazil combined reported an increase in foreign sales with five percent, up from two percent in 2010.
Not surprisingly, California was among the top states in attracting foreign buyers. But Florida actually was number one with 31 percent of total foreign transactions. California was second with 12 percent, Texas was third with nine percent, and Arizona fourth with six percent. Generally, the East Coast attracts European buyers. The West Coast remains popular for Asian purchasers. Mexican buyers are traditionally attracted to the Southwestern markets. And Florida is most popular among South Americans, Europeans and Canadians.
If you’re interested in learning more about the trend in international homebuyers, the NAR report is available here.
Below is a market-by-market report from our local offices:
North Bay – In Southern Marin, there has been a slight slowdown, both in open house attendance and sales. Many are attributing it to Father’s Day and graduations, and trying to be optimistic that we are not already in a seasonal summer slowdown. But on the plus side, there has been an increase in the number of high-end sales ($3 million and above) in the south part of the county. Our Greenbrae office says that inventory has declined but sales activity is steady. In Northern Mark, the lower end of the market continues to be the strongest, with either investors paying all cash or owner-occupiers utilizing FHA loans. We continue to see first-time buyers who are now looking further afield (Petaluma, Vallejo, etc.) for homes. Our Petaluma office reports that sales have been steady with double digit multiple offers in the under $300,000 range. Activity is also starting to heat up in the $400,000 to $800,000 range. Both sales and inventory are on the rise in Santa Rosa. Although buyers and sellers seem to be spending a lot of time sitting on the fence, the local market is slowly getting more active. In Sebastopol, open houses are well attended and the market remains steady overall. Most agents are involved in multiple offers. Cash is king when it comes to winning out.
San Francisco – Our Lombard office reports that sales activity has been steady with most deals resulting from multiple-offer situations and prices over asking. On the flip side, open houses and broker traffic have been slower, possibly a sign of the early summer slowdown. Our Market Street manager says the saying the “first offer is the best offer” is turning out to be quite true. Coaching sellers to act fast and respond to interest when the property is first listed is paramount. It’s often the first party with an offer that has the best terms and price. Sellers who wait often find themselves losing the first interested party in hopes of getting additional interest. Our Sunset office says open houses are still well attended but buyers are a little bit more reserved when it is time to make an offer. The summer slowdown is starting to show. Pricing is still the key in all markets.
SF Peninsula — Our Burlingame office said the local market has slowed recently, which generally corresponds with the end of school and summer vacations. Across the hills in Half Moon Bay, there has been good activity on the coast. The hottest segment is from $550k-$650k three-bed, two-bath and not a distressed property. Our Menlo Park office says the local market is still very strong with healthy sales volume. Lending is getting more onerous (conditions, etc.) but loans are out there. In Portola Valley, there have been a couple of bigger sales recently and still lots of strong buyers, but they’re being very cautious, our local manager reports. In Redwood City and San Carlos, activity seems to be picking up. Offers are taking longer to put together but with persistence they are coming together and closing. Selling still seems to be about location, condition and mostly price. If priced right, particularly in San Carlos, the properties go into contract quickly. In San Mateo, it’s a mixed market with single-family residences doing well but the condo market is still soft. It’s even more challenging because of banks looking at delinquent homeowners association dues and the ratio of owner-occupied units to renters.
East Bay – In Castro Valley, the market has quieted with inventory declining but sales steady. The market in Livermore for detached homes remains strong with less than three months inventory. Some 69% of the detached homes that are pending since June 1 were listed below $600,000. Most of the pending sales in Livermore in the $200,000 to $400,000 price range are multiple offers. Open house activity was lighter over the weekend, according to our Oakland/Piedmont office. But potential buyers were indicated that they were ready to buy if they found the right house. There is not a sense of urgency with the buyers so they are looking until they find the “perfect” house while investors are still looking for the best prices. In the Lamorinda area, the market has been steady of late. New listings and sales remain strong. However, It is very area specific. Some listings sell the moment they hit the market while others seem to take much more time. Finally in Walnut Creek, it’s steady as she goes. Open house activity has been good. Buyers seem to be out there looking, but many are hesitant to move ahead with purchases.
Silicon Valley – The Cupertino market has been much slower than usual with lots of agents on vacation. The Previews high-end market has been flat as well. Both sales and inventory are on the rise in Los Altos. Buyers are attending open houses in good numbers. Some are cautious while others are jumping in, especially in the single-family home market in Los Altos and Palo Alto. The Los Gatos market has been steady with inventory increasing, according to our local manager. Palo Alto remains a red-hot market with sales continuing to rise and inventory drop. Multiple offers in excess of 30% over list price are not uncommon in some areas due to the short supply and strong demand. Our San Jose Almaden manager says open house activity is starting to resume again. There were 54 groups through one house over the weekend in Willow Glen and 28 through one in Almaden. The Willow Glen office says sales are starting to pick up as compared to one to two weeks ago. The Saratoga market has been steady, tracking closely to what our local office sees this time of year. Our manager reports that they’re still seeing multiple offers for the under $2 million market in Saratoga and the Cupertino market.
South County – The last two weeks has seen a decrease in ratified contracts and buyer traffic, according to our Gilroy office. Traditionally, this happens at this time of year due to the end of school, graduations and vacations. However, with recent negative media coverage it seems the slowdown is a bit deeper. Best quote of the week: “Real Estate is local and consumer confidence is national.” Our Morgan Hill manager said that the local market continues to take one step forward and two steps back. March, April and May were very good sales month, but by the first of June sales activity slowed dramatically. This slowdown sometimes is attributed to the “June Swoon”—graduations, vacations, and end of school. In this case, however, he said national economic news, gas prices and the job market are also contributing factors. The market continues to be attractive to cash investors who are buying and either renting or “flipping” discounted properties.
Santa Cruz – Closed sales overall in the county were down 18 percent in May from a year ago while the median sale price has declined to just under $450,000. The good news is that there are significantly more properties under contract than there were a year ago, up 47%, and less inventory available, down by 8%. Nearly 60% of the properties closing are $500,000 or less with a high percentage of short sales and REO’s. Pricing and the buyer’s perception that the home is a great value is the driving force. It’s critical for sellers to price appropriately at the beginning. In the Previews segment of the market, sales over $1 million in Santa Cruz County totaled 10 in May vs. seven a year ago. The overall percentage of homes over $1 million is up from 4% to 7% of the total sales, a good sign. In the over $2 million mark, there are currently 52 homes on the market and two that sold in May. The market time for these homes is half of what it was a year ago, which is a sign that the high-end buyers are recognizing the time is right for that once in a lifetime purchase of a second home.
Monterey Peninsula – Our local offices report that they’ve had a busy May, putting 82 properties into escrow including several all cash sales with quick closes of only 7-10 days. By comparison, the first half of June feels a little less active. However, the area is filled with visitors now. Open houses are good with lots of showings of properties going on, so we’re expecting to see more new sales in coming weeks. The local inventory has gone down considerably since the beginning of the year, when we reached the highest point in January for the past two years. We are now at a new low of only about 21 months’ supply of inventory in our primary coastal market (not including Seaside or Marina). Those communities are down to a four-month supply. With the selection of properties not as good, quick action and even multiple offers happen on desirable, priced-right properties coming onto market.
That’s it for now. Have a good week!