Are The Chinese Taking Over U.S. Housing? [PulteGroup, Inc., Toll Brothers Inc, Lennar Corporation, KB Home]

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December 5, 2014 2:17pm NYSE:IYR

real estateIan Wyatt: Every homeowner in America knows that the housing market is bouncing back. Look no further than the 5.6% increase in home prices in the last year. But it may surprise you to learn that it isn’t the typical American that’s bidding up home prices.


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My friend owns a boutique, high-end construction company in the Seattle area. His company buys ramblers that were built in the 1950s and 1960s in the suburbs of Bellevue and Mercer Island. These towns are among the most affluent Seattle suburbs, located in close proximity to downtown and Microsoft’s Redmond headquarters.

His company pays about $600,000 for a teardown. That’s about 35 – 40% more than he paid just three years ago. They then tear down these older homes, and build 4,000 – 6,000 square foot homes that sell for $1.8 – $2.3 million.

The Seattle Times recently featured him in an article about teardowns and new home construction in the wealthy suburbs.

Not surprisingly, many of his buyers are execs from Amazon, Starbucks, or Microsoft. But he also says that 40% of his customers are Chinese nationals.

My friend’s business isn’t unique…it’s a trend that’s happening in cities along the West Coast, from San Diego to Vancouver. The close proximity and large Chinese communities in these cities make them attractive.

Newly wealthy Chinese are seeking ways to take their savings outside of the country. Right now, U.S. real estate seems to be one of their favorite places to invest.

A recent report from the National Association of Realtors looked at U.S. real estate transactions by international clients. Over a 12-month period ending March 2014, international buyers spent $92.2 billion buying homes in the U.S. That was a 35% increase.

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Source: National Association of Realtors

Chinese nationals were at the top of the list, accounting for $22 billion of U.S. housing purchases. They’re purchasing homes with a mean purchase price of $590,000. That’s more than double the average price of a home in the U.S.

Despite paying higher prices for real estate, most Chinese investors don’t plan to spend a lot of time in the U.S. Only 39% purchased their homes as a primary residence.

Homebuilders – like my friend in Seattle – love international buyers. That’s because three-quarters of transactions are done in cash. And every seller prefers a quick closing that doesn’t involve mortgage financing.

International buyers are clearly a big factor in some housing markets. That’s especially apparent in prime markets, with an average sale price above $400,000..

U.S. housing markets have clearly rebounded since the crash of 2008 – 2010. But expensive homes have bounced back far more quickly than lower-priced homes. And the participation of international customers is clearly focused on the high end.

In Middle America, international buyers aren’t having much of an impact. But in places like Bellevue, Washington, international buyers are playing a big role in the bull market for million-dollar homes.

Rising home prices is one of many positive signs for the U.S. economy. In prime markets like Seattle, San Francisco, and New York, expensive home prices should continue to rise more rapidly than the average home in America.

This article is brought to you courtesy of Ian Wyatt from Wyatt Investment Research.


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