
Foreign purchases of American homes plunge as Chinese buyers flee the market - killjoywashere
https://www.cnbc.com/2019/07/17/foreign-purchases-of-american-homes-plunge-36percent-as-chinese-buyers-flee.html
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always4getpass
Real estate and primary residences should not be a market and an investment
opportunity imo.

A company buying thousands of homes and then milking workers through rent for
decades seems unethical.

While I do not have a solution, I think this is an issue we should work on

~~~
lotsofpulp
Masking the true price (cost) of something is what causes the market to be
inefficient, resulting in excess or insufficient supply.

If anything, rents indicate true cost compared to mortgage costs which can
accurately signal for more (or less) construction needed. In the US, ownership
costs are masked by subsidizing interest rates, loan repayment periods, down
payment amounts, and mortgage interest tax deductions. Also, property tax
limits subsidize existing owners.

There is a bit of a conflict in the mechanics of democracy with zoning laws
and taxes, with existing owners having an incentive to limit supply,
especially in booming markets. It’s a very tough problem to solve, but making
clear the costs of all the subsidies would help.

~~~
bobthepanda
Homeowners don’t really care about the cost of subsidies since they benefit
the most from it.

The real problem is that zoning is decided at the local level; local turnout
is not very high, so it doesn’t take that many concerned homeowners to
overthrow someone who is too pro-growth. And usually local municipalities are
balkanized subsets of the region, who want all the upside of regional growth
but none of the downside. In the most extreme example, the Bay Area, this
leads to lots of permits for job expansion in small localities but not for
housing, since residents need a lot more in the way of services.

It would be much more healthy to have zoning laid out at the state or regional
level, but regional level governments don’t even really exist in the American
context, and only a few cities in America have continued annexing suburban
areas into the 21st century.

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lotsofpulp
>The real problem is that zoning is decided at the local level; local turnout
is not very high, so it doesn’t take that many concerned homeowners to
overthrow someone who is too pro-growth.

Hence removing the subsidies or at least making explicit the cost of
subsidies, so people are incentivized to go out and vote for increases in
supply. Another option is to hand over ownership to government and make
everyone do land leases to make them participate in the market and therefore
vote the “right” way. Not a perfect solution of course.

~~~
bobthepanda
The problem is that, in general, wealthy and older people are more likely to
turnout and vote, and more likely to participate in lower level elections, and
this class of people is well-correlated with owning homes. So homeowners have
quite a lot of power even compared to renters, and they are more than happy to
flex it. They don't really care that there are subsidies, because they're the
primary beneficiaries.

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cjhanks
Chinese leverage is high and their economy is trending down. They _have_ to
contract into slightly more conservative positions. And afaik, they were the
world wide cause of inflationary real-estate.

I would suspect that US markets are less to blame than foreign economies
showing signs of contracting. In any case, it's good for American's.

It's insane to me that our ability to buy homes is so adversely affected by
foreign investment.

~~~
JMTQp8lwXL
As our economic productivity centralizes around cities, zoning laws protect
existing property owner interests, which in turn, restrict supply. Foreign
investment certainly plays a role, but I think it misses the forest for the
trees.

Also the fact that people can leverage a home purchase 5-to-1. If mortgages
weren't a financial instrument, few could afford today's prices. I won't go
into detail here, since the chances of mortgages going away is near-zero, but
the possibility of zoning changes is somewhat reasonably possible.

~~~
mymythisisthis
Demographics is the real key issue. A bulge of kids had reached home buying
age all at once (the children of the Baby Boomers). We're now on the other
side of that curve. Prices are starting to stabilize in all large cities that
have seen a bubble. The demographic bubble/bulge was made worse by foreign
investors, zoning, speculation, etc., but fundamentally all the kids of the
Baby Boomers entered the market at about the same time.

Housing Shortage After WWII (aprox. 1945-1955) 30 years latter another housing
bubble (aprox. 1980s) 30 years after that another housing bubble (aprox.
2010s)

Incidentally Trump is a good reflection of America. His father made a fortune
in the post war housing bubble, Trump is the face of the 80s housing bubble,
and now he's back again for this housing bubble.

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credit_guy
Real estate sales to foreign buyers is a form of export. Maybe the best
export:

* the good (the house) does not leave the country

* the money continues to flow after the actual sale: real estate taxes and maintenance

* taxes go to the local government, but the non-resident buyer does not really consume government services, so that benefits the rest of the local population

* maintenance go to the local economy

* when the rich foreigner visits, they spend like a tourist, not like a local, i.e. they contribute to the local economy disproportionately compared to their actual presence

Why do rich Chinese buy in Manhattan? Why not in Lagos, such as this wonderful
house [1] that goes for $1MM ? Because of the rule of law. Real estate sales
to foreign investors is actually export of the rule of law. The rule of law is
simply a more valuable asset in Manhattan than in Lagos, or in Beijing for
that matter.

Impeding real estate sales to foreigners simply means obstructing the
monetization of maybe the most valuable asset that the Western world has. (or
maybe the second most valuable)

[1] [https://www.nigeriapropertycentre.com/for-
sale/houses/block-...](https://www.nigeriapropertycentre.com/for-
sale/houses/block-of-flats/lagos/lekki/lekki-phase-1/347150-4-units-3-bedroom-
flats-bq-exquisitely-finished-lekki-phase-1)

~~~
te_chris
"Impeding real estate sales to foreigners simply means obstructing the
monetization of maybe the most valuable asset that the Western world has. (or
maybe the second most valuable)"

Literally the whole point of doing it.

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Sabinus
Now if this trend would spread to other western countries like Australia we
could have some nice healthy housing price deflation.

~~~
C1sc0cat
Ask japan about how that worked out for them - how may lost decades is it now
?

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pixl97
Japan's set of issues is so significantly different it's not really worthwhile
bringing them up.

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mmazing
Something interesting about those numbers - the _average_ sale price of the
real estate is 425k to 450k.

Also interesting is the average price for each property dropped from last year
to this year (from 450 to 425).

Dunno what any of that really implies but thought it was interesting.

~~~
ptmvp
One thing I noted was that the median price paid by foreign buyers was not as
high as I expected when compared to the median price for all buyers (280.6k
compared to 259.6k).

This indicates to me that these foreign buyers are not necessarily
institutional investors or companies, but foreign citizens, so the segment of
the market they're in is probably not the multi-million property segment, but
the more "standard" residential properties market a normal US resident would
be in. The article does somewhat confirm this:

>"Foreign buyers include those living in the U.S. and overseas, but the
majority (60%) were recent immigrants and foreigners who live in the U.S. for
work, school or other reasons."

If you also take into account that there is an effect of the purchases made by
these buyers on the "median price for all buyers" cited above (and so the real
difference in median prices between foreign/domestic buyers is higher than
what is suggested by those figures), I think the effect is somewhat diminished
(as this pushes them into a more "upscale" market).

Even with the above, I still think it's relatively safe to assume this will
have a downwards impact on US residential prices, at least in these states
(but I'd need precise figures as to what share of homebuyers are foreign).

*edited the last paragraphs to correct something I had gotten mixed-up on

~~~
C1sc0cat
They are buying flats of plan mostly I would expect not 4 bed detached.

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shaunrussell
Foreign + corporate ownership of single family homes is a ridiculous concept
and significantly contributing to our inflated home prices. You should have to
be a citizen to own property.

Imagine having to get a visa to go to a home you own?

~~~
charlesdm
So if I have the means and want to live in both the US and Spain I'm not
allowed? Now that seems like a ridiculous concept.

Citizenship is an outdated concept, and not one I really agree with.

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UweSchmidt
OP said "corporate". A person and a company are two separate things (even
though they get problematically conflated in the concept of "corporation").

Calling citizenship outdated is a fashionable idea for the class of people who
can cherry pick their prefered work-, investment- and tax environment.

In the old days an individual would have some sort of responsibility towards
the community, including the effect of house ownership as described by OP.
Another outdated concept?

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r00fus
Is anyone surprised with this given outcome this administration's trade war?

On one hand maybe this combined with the tax changes will result in housing
price stabilization.

However given how much of the economy is tied to FIRE, it could have
significant external impacts.

~~~
tehlike
Why is trade war related to house purchases?

~~~
Hates_
From the article, the CEO and director of Juwai.com explains it as a result of
"a combination of anti-Chinese political rhetoric, a clampdown on visa
processing, and of course tariffs".

~~~
tehlike
My simplistic view is foreign buyers want to buy because of stability in the
us market, and as a way to park their money away from their government.

The simplest reason i can think of is due to tariffs rmb lost value compared
to us, making us housing tad bit more expensive. But housing market has
dropped a bit to make up for it.

I am not fully convinced.

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Causality1
I'm a little surprised people without green cards are allowed to purchase
homes in the US at all.

~~~
benrbray
I'm an American and it's dawned on me recently how absolutely bonkers it is
that we see housing--a basic human need--as something to make a profit from.
Foreign-owned houses/land left vacant for most of the year is definitely a
symptom of this problem.

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JMTQp8lwXL
Housing held for investment, which is usually rented out, is tied to the
economic realities (e.g., wages) of a given area. People can only afford to
pay so much. You can always choose to rent or buy. Prices to buy are quite
high in hot markets. But the cost to rent will be tied to wages. So, the basic
human need should still be getting met. Ownership, though, is becoming a
smaller and smaller pool-- which meets the ongoing trend of progressively
growing income inequality.

~~~
pixl97
Being that rents have dramatically increased in the US in almost all places
while wages have not seems to put some dents in your theory.

Also rent is becoming an ever larger expense in almost everyone's budget. I
have a feeling we are playing the "market can remain irrational longer than an
individual can remain solvent" game yet again, especially propped up by low
rates of borrowing that's going to explode in our face yet again.

~~~
JMTQp8lwXL
Rents increased because people can afford it, at the expense of everything
else in their budget. If it was "too much", they wouldn't pay it-- the
sacrifices would become too big, to the point where living on the street or
sleeping in their car would look like a better option. For that to happen,
rents would have to be so high you might be deciding between food and a place
to a sleep. We're far from that.

~~~
asdff
We aren't in LA which has 60k people living on the streets and many more on
the brink. What happens when rents get too high is that you ultimately grind
your city to a halt because you start making the apartment disproportionately
available to certain occupations.

Sure, the software engineers move into the apartment and the janitors move
out, but you still need janitors, you still need service workers, you still
need these low wage jobs to actually make a city function.

So now the janitor moves to a place that's 2 hours away and still needs that
job where he used to live, so he buys a dirt cheap car and commutes from where
it is affordable (which doesn't have any jobs for him) to where he works.

Roads get clogged, road maintenance costs increase, pollution increases, the
costs to repair things increases because you gotta pay people more to spend
more time getting to the job site, services are hindered, goods deliveries are
hindered because now everyone is spread out across a 500mi suburban area
instead of being close together in a dense and sustainable urban area, and we
end up with the LA we see today: a hellhole for the working class, but a boon
for the few people with capital to grow.

There is a limit for lateral growth and it's already been reached in LA in the
40s. They built highways which were a temporary reprieve for the traffic, but
now those are clogged as badly as the avenues were in the 40s (and still are
today). It's been time for vertical growth and transit, which is how much of
the city was originally planned, with a vast interurban rail network spanning
the entire basin and the valleys that made the NYC subway seem paltry.

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xxxpupugo
So good right? Easier to buy a house now, less competition.

House owners should be happy enough to have the real estate goes straight up
those many years. There is an end to it, they need to accept that.

In short, happy after all.

~~~
whalesalad
Very good, especially for those of us in Southern California where foreigners
have been purchasing a ton of property with cash. It’s tough to compete.

~~~
JMTQp8lwXL
Zoning laws have more of an impact than foreign purchases. California has been
under-building for decades. It would take a monumental political change to
play catch-up.

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linkregister
True, a market that allowed for up-zoned property building would absorb the
foreign investment. Hell, it would help bring money into the community.
Exporting flipped condos to foreign buyers is wealth transfer to that
locality, if the market can be permitted to expand in response to increased
demand. This does not mean "bulldozing Central Park," it means "allowing the
owner of a laundromat to build a 3-story condominium."

The worst-case scenario in that case is "overbuilding," a deceptive term that
means that housing becomes affordable again to those who need it, e.g.
minorities previously subjected to redlining.

~~~
C1sc0cat
Or you get a lot of poorly built property, its all fun an games until you get
a building collapse.

~~~
linkregister
Is this a problem that you've observed in the United States? Do you think that
housing is fundamentally different from other goods in a market?

Do we have similar problems with food, clothing, cars, and other goods?

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sk5t
It's impossible to read almost any mass-media article about real estate
without leaving wearied by loaded phrases and unfounded conclusions. In what
other sphere is a decrease in purchasing "fleeing the market"? Where are the
fire sales, or even, where are the begrudging foreign property sellers?

Still somewhat fresh in memory are NAR economist Lawrence Yun's bizarre
rationalizations in the runup to the 2008-09 GFC.

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RomanBob
>price goes up

People can't afford housing because Chinese are buying up all the houses.

>price goes down

People lose life savings because Chinese are not buying up all the houses.

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rxhernandez
I don't agree with either statement at all but the second statement seems
predicated on the first. That is, some people bought in a bubble the Chinese
created and they lost their savings when the bubble popped and the Chinese
stopped buying. This does not at all resemble the dichotomy of, damned if you
do or damned if you dont, like you seem to be implying.

Again I do not agree with either statement even remotely. I haven't done any
serious research on the current housing market and dont harbor any feelings or
ideas on it.

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hexo
LOL! US would be always ranting instead of being happy that security risk is
leaving country/ceased to buy their place for living. Can believe my eyes how
stupid one country can be. First you impose sanctions and then you can't
believe when these sanctions hit you back. bwahahahah

