Affluent Chinese Investors Showing Great Interest in U.S. Housing Market

Greetings from Shanghai!

By now, most of us have heard the stories about well-heeled investors from Asia flocking to the U.S. to purchase luxury homes. But over the next week, I’ll get a first-hand account of just how strong that interest is. And by all accounts, the enthusiasm by Chinese investors for U.S. real estate is increasing all the time, particularly for properties in the Bay Area.

I just arrived in Shanghai where I’ll be addressing a large forum of affluent Chinese who have expressed strong interest in buying real estate in America. This is the first of two stops (the second will be Hangzhou in eastern China) where I’ll discuss the status of the U.S. housing market and focus on key regions of interest to foreign investors. In addition to talking about San Francisco and Silicon Valley, I’ll provide market updates for Los Angeles, Seattle, Chicago, New York, and Boston.

The speaking tour is part of a new effort by Coldwell Banker Residential Brokerage and partner companies to assist affluent Asian residents who want to invest in U.S. cities, launch businesses, create jobs, purchase homes, and possibly immigrate to the U.S.

Chinese investors have expressed a strong interest in both coasts of the U.S., as well as Chicago and also Dallas. But San Francisco and the Silicon Valley area are especially high up on their radar. They’re attracted by the strength of our markets, the relative affordability of homes in the U.S. when compared to many Chinese cities, and the potential for strong home price appreciation.

In addition to the economic reasons for buying here, many Chinese investors focus on the quality of life and the quality of education, particularly higher educational opportunities, for themselves and their children. World-class universities like Stanford and Cal serve as a magnet for Asian buyers, often bringing talented engineers and other knowledge workers to our region to live, work, attain advanced degrees and launch new businesses.

In my presentation, I intend to tell Chinese investors that while the U.S. housing market in general did indeed suffer a recessionary downturn from its peak in 2006, both prices and sales have rebounded quite well over the past two years. In my opinion, Chinese investors would be well served to get into the market now while prices still are relatively low compared to their peak levels.

There’s no doubt in my mind that the tide has turned. Just recently, the National Association of Realtors reported that October home sales in the U.S. were 11% higher than a year ago.  This marked the seventh straight month that the nation’s housing market saw improvement year-over-year, the first time that’s happened since November 2005-May 2006.

One thing I’ll explain about the U.S. housing market is that it’s a very local issue; prices and the strength of the market vary tremendously from state to state and city to city. While some cities in the U.S. suffered extremely sharp downturns in prices and sales – Las Vegas, San Diego and much of Florida come to mind – other areas were not really impacted as much.

San Francisco and Silicon Valley, for example, never saw prices drop as sharply as most of the nation. And both regions have rebounded sharply in sales and prices with the biggest challenge being not enough homes for sale to meet buyer demand.

I’m looking forward to hearing what the Chinese investors have to say during my meetings next week. I’ll be sure to share with you what I hear when I get back to the states.

Below is a market-by-market report from our local offices:

North Bay – Just when you think we’d be slowing down, business continues to remain solid, our Central Marin manager says.  Many sellers are trying to avoid the potential new capital gains tax laws by closing escrow before December 31st and this was really the last week to do that safely. Buyers are also trying to beat the clock for 1031 exchanges and tax write-offs for 2012, so the pressure is on there as well.  All this means a good December in sales, with some even spilling over to January.  Consensus is that we still have a big backlog of buyers in Marin and 2013 is going to be a strong, solid year once sellers realize now is the time to put their homes on the market.  We are encouraging clients to consider January/February list dates vs. waiting for spring.  Still going strong in the multi-million category with several properties in escrow this week alone. The buyers are clamoring for more inventory in just about all price ranges, our Sebastopol manager notes. Appraisals remain a challenge with more lenders asking to see the Real Estate Transfer Disclosure or the Seller Property Questionnaire and sometimes denying the loan based on the content of the disclosures. The lenders say they want to loan but there seem to be lots of obstacles.

San Francisco – Record low inventory continues to be the hobgoblin now, our Lakeside office manager says.  Agents are seeing more sales where the buyer’s agent has tracked down a property not on the market in order to satisfy the buyer demand. A post-Thanksgiving Holiday drop-off apparently has affected listing inventory (even lower), our Lombard manager reports. But sales remain brisk through early December. City inventory is down to about a month.  Also agents are seeing a few more transactions that are contingent upon a 2012 close. Our Market Street office also says a holiday slowdown of listings is in full swing, but the buyers are still out there looking to scoop up what little inventory exists (meaning most properties continue to receive multiple offers). The Sunset office also is seeing a drop in inventory continues as sellers’ are holding off putting their property on the market until next week.  The very few listings that had open houses have extremely heavy traffic.  One new listing in the Outer Richmond had over 200 people go through during a two-hour period.   Multiple offers are still the norm but the number of offers has dropped slightly. Sales of luxury homes are very strong, the Van Ness manager says.  Many buyers are ready to close in 2012 to allow sellers to save on increased taxes in 2013.

2901 Broadway San Francisco

SF Peninsula — Our Burlingame manager said everyone is wishing for inventory, as agents need to go farther afield to find homes for buyers who want to close by the end of the year. Every price point is competitive with buyers making 5+ offers before they finally are successful. All cash offers are common in every price point and contingent free offers are what usually prevails.  Active inventory for the six cities our Burlingame North manager surveyed is down over 46% from this time last year.  November ratified sales for the same areas is up nearly 36% from last November demonstrating that demand is very high and homes priced appropriately and presented to the market properly are snapped up quickly with multiple offers.  In fact, over 66% of those homes that closed escrow in November sold for the asking price or more.  Short Sale and REO activity have decreased dramatically in all statuses. The Menlo Park office is still very busy with absolutely no inventory.    A sample of the number of offers:  A MP condo listed for $600K had 11 offers. A MP house listed for $1.05 million had 50!   And a condo in San Jose listed at $275K had 32 offers! After a busy November with properties priced right receiving multiple offers (as high as 15 offers), our Palo Alto office is just starting to see the holiday slow down. Our Redwood City manager said lack of inventory is causing frustration with both the buyers and the agents.  San Carlos is becoming more and more desirable.  There was a “walk in” client a few weeks ago that put their home in San Carlos on the market. Even though it needed updating it sold in one day for considerably over the list price of $860,000.  San Mateo agents are doing everything and anything to squeeze out final sales.  The intention is to close in 2012 when you know what the tax consequences are.

475 Cotton, Woodside

East Bay – Not much to add to what has been said for months now, our Berkeley manager notes.  Not enough properties for the eager buyers.  Still some appraisal issues.  A recent El Cerrito property was appraised so badly that complaints were made.  Still plenty of multiple offers, the most being 18 offers on a nearby condo.  Even in the Previews luxury market sales are going over asking price. Strong buyer demand still prevails throughout the local market from investors to first-time buyers to luxury homebuyers, according to our Danville manager. Inventory is as tight as it has been all year, our Oakland-Piedmont office says. Listings are in the preparation stages for early next year and sellers are not willing to speed it up to get on the market in December. There were over 150 groups through the open house on a new listing last weekend and over 25 requests for packets the first weekend out. Buyers are continuing to write offers even though they are continuing to lose out. Only time will tell if inventory will grow after the first of the year. Inventory continues to remain low in the Lamorinda area. Cash offers continue to be prevalent. Open homes are beginning to decrease even as demand from buyers remains steady. Our Walnut Creek office says inventory is really, really low.   Buyers are still competing with multiple offers with no appraisal contingencies on a majority of the offers.

2076 Estates, Fremont

Silicon Valley – Our Cupertino manager said sales activity is becoming a bit “Holiday” light, but some of the agents are still working hard and are very busy. The sky is the limit once we start getting more inventory, she adds. In the past, our Los Gatos manager said his agents encouraged sellers to wait to go on the MLS until after the Super Bowl.  Based on the strength of that market and the fact that there are fewer than a thousand active single-family homes for sale in Santa Clara County, there is no reason for a seller to wait.  We don’t know how long this window of opportunity will last. Overall San Jose Willow Glen agents are aggressively working with buyers trying to get into contract with the limited inventory out there. Inventory levels remain low with fewer and fewer homes coming to market as we get closer to the Christmas holiday.  Our agents have been successful both getting their buyers into contract and selling all those languishing listings that are now drawing lots of attention, as there is not much for aggressive buyers to find. Homes that are currently active are all drawing lots of attention as buyers feel these are very motivated sellers and maybe there isn’t much competition.  Even though the inventory is extremely low, Saratoga agents are involved in multiple offers almost every day. They’re hopeful that the two sales in the last few weeks near $6 million each are a sign that the local Previews luxury market is improving.

South County – The holiday season traditionally has an impact on real estate activity in the South County, our Morgan Hill manager says.   Lately, however, this is not the case.  Demand remains high for the relatively few homes that are offered for sale.  Despite the holidays, bad weather and other distractions, buyers continue to make offers on scarce properties—often times bidding substantially over the list price.   In most cases, for every offer accepted by a seller, there are four to five disappointed buyers whose bids were not accepted.  Morgan Hill agents are looking at every way possible to secure a property.  One agent even went so far as to submit a “contingency removal” form with their initial offer.

Santa Cruz County – As of November 1st, there were 683 homes on the market in Santa Cruz County, down 22% year over year.  274 of the 683 are currently under contract, so there are 409 active listings.  28% of the sales in October were either short sales or bank owned, with the lower income areas of San Lorenzo Valley and Watsonville making up 31% of the total sales.  50% of the total sales were under $500K so the lower end of the market is still where most of the sales are occurring, and only 7% of the total number represents sales over $1 million.  Overall, prices are up about 18% from January, and 25% year over year with sales exceeding the same month year over year for 13 of the last 14 months. Very low inventory levels continuing putting pressure on the market and causing values to rise.  All good signs and the agents are definitely feeling the forward and upward momentum.

7422 Alturas, Monterey

Monterey Peninsula – While our local offices have been enjoying very steady activity for many months now, the Thanksgiving holiday, bad weather and reduced inventory on the market slowed agents down a bit so that there were fewer new escrows opened in last two weeks.  Hopefully, with the end of the year looming and possible new tax consequences for 2013, things will pick right up again and still have a good number of closings for December.

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