Foreign Homebuying Losing Momentum in Market Recovery

California has always been a hot spot for foreign investors and foreign homebuyers – demand has been high in coastal areas and an influx of foreign money has contributed to soaring real estate prices in the state. The median price of a California home is expected to climb 6.5% this year to $476,300 and the housing market is forecasted to improve with sales to increase 6.3% next year. Despite this predicted improvement, the global economic slowdown may have an effect on the California housing market.

International buyers are accounting for the smallest share of California home sales in eight years as prices continue to rise and foreign investors slow buying. The share of international buyers peaked at 8% in 2013, but is now down to less than 4%. Buyers from mainland China, Hong Kong and Taiwan made up 43% of international purchases in California this year, followed by 8% each from Mexico and South Korea.

According to Leslie Appleton-Young, chief economist for the California Association of Realtors, Chinese purchasers may be slowing because it is difficult to move money abroad – China has limited individuals to spending no more than $50,000 overseas and the central government has ramped up anti-corruption campaigns amidst the slowing economy that has seen turmoil in recent months.

Across the U.S., buyers from China, Hong Kong and Taiwan spent an estimated $28.6 billion on homes in the 12 months through March, more than double the $11.2 billion spent by No. 2 Canada. The average price was $831,800 for Chinese purchasers, compared to $499,600 for all international buyers. Chinese buyers have focused their purchasing in a few areas such as the San Gabriel Valley and Irvine, outside Los Angeles, and parts of the San Francisco Bay area with reputations for quality schools, despite the high prices in some of these markets.

Even though it may seem that the Chinese are investing less, the drop in their California home purchases may signal their growing sophistication and diversification of investment in U.S. real estate. They are purchasing homes in other markets, such as New York and Seattle, and investing in commercial property. “The Chinese buyer is more selective, more knowledgeable,” economist Perry Wong said. “They’re looking at land and development, not just housing.”

What effects do you think the decline in foreign homebuying will have on the California housing market? Do you think this is what it needs to keep affordability in check?

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  • R. Edgar

    The decline in foreign homebuying may help to bring affordability in check – many average homebuyers can’t compete with foreign investors who often have large amounts of cash at the ready for home purchases. Since these foreign buyers may be moving to commercial investment, that leaves less competition for the small amount of homes on the market.