Chinese purchases of U.S. homes on the Rise

Buyers from Greater China, including people from Hong Kong and Taiwan, spent $22 billion on U.S. homes in the year through March, up 72 percent from the same period in 2013 and more than any other nationality, the National Association of Realtors said yesterday in its annual report on foreign home purchases. That’s

24 cents of every dollar spent by international homebuyers, according to the survey of 3,547 real estate agents.

Chinese purchases of U.S. homes are likely to continue increasing as the country’s swelling ranks of affluent consumers seek refuge from pollution and political and economic uncertainty, according to Thilo Hanemann, who tracks cross- border investment for the New York-based Rhodium Group.

“A lot of people are trying to hedge against a generally bearish outlook for the Chinese economy,” Hanemann said in a telephone interview. “Buying real estate overseas has been in the past limited to a relatively small group of wealthy individuals and sometimes government officials. But it’s become a much bigger trend, involving affluent middle-class people.”

Higher Prices

Chinese buyers paid a median of $523,148 per transaction, compared with a U.S. median price of $199,575 for existing-home sales. While Canadians bought more houses than the Chinese, they spent less — a median of $212,500 per residence, for a total of $13.8 billion.

Publicly traded builders are to responding by catering to Chinese buyers in areas with high demand. Brookfield Residential Properties Inc. staged feng shui blessing ceremonies before beginning work on projects in Anaheim and Foothill Ranch communities in Orange County, south of Los Angeles. The New Home Co. consulted with a feng shui master on the land plan for its Orchard Park development in San Jose, California, that opened in April.

New Construction

Buyers from China are driving up prices and fueling new construction in Southern California areas such as Arcadia, a city of about 57,500 people with top-rated schools, a large Chinese immigrant community and an array of Chinese restaurants and markets.

The median home price in Arcadia’s 91006 ZIP code was $1.28 million in May, up 18.5 percent from a year earlier, according to research firm DataQuick.

“About 90 percent of my buyers are from China,” said Peggy Fong Chen, a broker with Re/Max Holdings Inc., who sold 80 homes in Arcadia last year. “They want new construction. They want two levels. In China, it is considered a mansion if it has two levels.”

More than three out of four buyers pay cash, said Chen, a native of Hong Kong who’s been selling real estate for 10 years.

At least 20 percent are absentee owners who don’t have long-term visas yet. Many purchase houses for their children to attend high school or college, she said.

Almost half of the buyers paid cash for houses in the development, at prices starting at $1.16 million, he said. The company has been surprised by how word travels among overseas buyers.

“A Chinese national bought one of our houses at Arcadia in Irvine after reading about it on a blog,” Tri Pointe CEO Doug Bauer said in a telephone interview. “It was a Chinese blog. We couldn’t even read it.”

Hui Hui Huang, a Taiwanese lawyer based in Shanghai, agreed last week to buy a five-bedroom Tri Pointe townhouse in San Mateo, near San Francisco International Airport, for $1.38 million. She and her husband were looking for a U.S. home as they develop a smartphone app to help diabetics better monitor insulin levels.

“We said, ‘wow, this is really attractive and serves our needs,’’ said Huang, 39, who went to law school in San Francisco with a classmate who also bought in the project.

Relative Bargain

Even as prices climb, U.S. real estate remains a relative bargain for Chinese investors, according to William Yu, an economist at the University of California at Los Angeles’s Anderson School of Management.

Two-bedroom condominiums in Shanghai’s Pudong district cost about $1 million, almost twice as much per square foot as condos in West Los Angeles, according a report by Yu last month. The Pudong units command $1,400 a month in rent compared with $3,300 in Los Angeles.

‘‘From an investor’s point of view, it’s better to be a landlord in L.A. than Shanghai,” Yu said in a telephone interview. “If you compare the rent-to-income ratio, it’s much better in Los Angeles than Shanghai.”

Some wealthy Chinese have come up with ways to evade the yearly $50,000 per-person limit on taking money out of the country so they can buy U.S. real estate, Yu said. Methods include laundering money through Macau casinos and cooking the books of import-export companies, he said.

“A lot of people over-invoice export proceeds, so they can park some money outside,” Ha Jiming, chief investment strategist for Goldman Sachs Group Inc.’s China investment management division, said at a Los Angeles conference in April.

Growing Share

Sales of U.S. houses to long-term foreign residents and non-resident buyers accounted for about 7 percent of the $1.2 trillion of existing-home transactions in the year through March, the National Association of Realtors said.

Chinese and Canadians were followed by buyers from India and the U.K., with investors from each of the countries spending

$5.8 billion on U.S. homes. Mexicans spent $4.5 billion, making them the fifth-largest international buyer group.

The share of money arriving from China is likely to keep growing, according to Lawrence Yun, chief economist for the Realtors.

“It’s just the beginning of a tidal wave,” he said in a telephone interview.

Overseas buyers are changing Arcadia, according to Nunez, 55, who has lived in the city since he was 6 years old.

“You drive every street and there are three or four new houses being built,” he said. “It’s just incredible, the demand.”

Three key reasons why the Fed may keep its short-term interest rate — the federal funds rate

In a speech Tuesday, Federal Reserve Bank of New York President William Dudley laid out three key reasons why the Fed may keep its short-term interest rate — the federal funds rate — below historic averages for the long haul. That rate is important, because it impacts rates for mortgages and loans.

1) The economy remains weak: Like it or not, the economy is still disappointing on several fronts, and that may not change anytime soon.

“Economic headwinds seem likely to persist for several more years,” Dudley said in a speech to the New York Association of Business Economics.

He notes that the Great Recession “scarred households and businesses,” which is likely to dampen their spending and investment for a long time.

Meanwhile, the housing sector is facing “several significant headwinds,” he said.

Related: Janet Yellen’s big concern is a housing slowdown

Take these three, for example: Mortgages are still hard to come by for homebuyers with all but the most pristine credit histories. High levels of student debt are delaying young people from becoming first-time home buyers. Finally, housing supply remains limited.

2) Our future potential is declining: Remember the economic good times? Say, the Clinton years or the mid-2000s? In the future, the U.S. economy has lower potential to grow at the strong rates it did in the 1990s and 2000s, mainly because a huge portion of the population is retiring. (Yes, we’re talking about you, baby boomers!)

Lower economic potential implies interest rates will have to remain low, even after the economy starts revving up again, Dudley said.

3) Bank regulation: Following the massive crash in 2008, banks these days are required to hold a larger cushion of cash on the sidelines for emergencies. While these higher capital requirements are “essential in order to make the financial system more robust,” Dudley said, this is likely to cause the Fed to keep low interest rates in place in the future.

Why? Traditionally, banks make their money by taking in your deposits and paying you a certain interest rate, but then lending that money out to someone else at a higher rate. If banks are forced to hold more cash on the sidelines, they may become less profitable and may slow their lending.

If the Fed wants to continue stimulating the economy, this means it may have to keep interest rates lower than usual, to achieve its desired impact on the economy.

Generation X jumps to the top

Generation X jumps to the top. Generation X—those ages 33 to 47—made up the largest chunk of home buyers, at 31 percent, between July 2011 and June 2012, according to the National Association of REALTORS®’ “Home Buyer and Seller Generational Trends” report. Generation Y—those 32 and younger—made up the second-largest group, at 28 percent, followed by younger baby boomers (18 percent) and older baby boomers (14 percent).

8 Reasons why you should not do FSBO, Here’s why:

1. The decline of print advertising as a major lead generator In the past, newspaper ads would produce a fair number of calls on FSBOs. Today, a three-line ad in the local newspaper has little chance of competing with the wide array of information online, including video, color photos, 360-degree virtual tours, and a wealth of community and lifestyle data.

2. Buyers seek rich content IDX and VOW solutions, Realtor.com, Trulia and Zillow provide access to virtually all the listings in most market areas. Most buyers comb these major sites simply because it’s more efficient than searching for single properties.

3. Instant gratification A third problem for FSBOs is that people who surf the Web usually are seeking instant gratification. In fact, most visitors will only visit a website once and stay for 15-30 seconds. If the FSBO has no strategy for capturing the lead’s contact information or for immediately following up, the lead moves on to the next website. Even if the Web lead does contact the FSBO, unless the buyer gets back to the FSBO quickly, that lead is gone.

4. Buyers want the savings Even for those who do search for FSBOs, most buyers automatically deduct 6 percent from the sales price because they want the savings in their pockets, not the seller’s. The result is that many FSBOs end up selling for up to 20 percent less on average as compared with sellers who hire a Realtor.

5. The needle-in-the-haystack effect A major challenge for FSBOs is the needle-in-the-haystack nature of the Web. There are millions of websites including the hundreds of thousands of company and agent sites. Without search engine optimization, meta tags and a host of other branding strategies to achieve high Web placement, the probability of the Web buyer finding the FSBO’s single listing online is small. Of course, the buyer could post on sites such as ForSalebyOwner.com, ByOwnerMLS, or utilize the “Make Me Move” feature on Zillow. The challenge is that unless the buyer specifically wants to purchase a FSBO, it’s much more efficient to search on the brokerage or MLS sites. The FSBO could also put his home on Craigslist. There are two challenges, however. First, the FSBO has to repost the ad regularly for it to appear near the top where it can be found. Second, there have been so many rental scams and unsavory people using that site to identify targets for possible criminal activity that listing there could be a major safety issue.

6. Web leads are reluctant to share contact information Another issue FSBOs must face is that most Web buyers are reluctant to provide contact information to a stranger, especially during the search process. Instead, buyers identify homes they want to see and then normally contact a single agent who can show them everything they want to see, not just a single home.

7. Availability for showings Because FSBOs don’t have lockboxes, that means the FSBO will need to be present for every showing. There are numerous challenges with this situation, the most important of which is safety. Is the person who wants to see your house legitimate or not? Even if you accept an offer from a potential buyer, how do you know whether the person meets the income and credit requirements to close the deal?

8. The proof is in the pudding Here’s a great closing question for sellers who believe that becoming a FSBO is a smart move. Did you know that Colby Sambrotto, founder of ForSalebyOwner.com, which is one of the most popular and robust FSBO sites on the Web, ended up listing his home with an agent AND paying a full commission? If he couldn’t get the job done for himself using his website, how effective do you think this approach will be in getting your home sold for the highest possible price in the shortest amount of time? – See more at: http://www.inman.com/2012/04/26/8-reasons-fsbos-should-list-with-a-realtor/#sthash.bj6ZllnA.dpuf

Credit Scores: Mortgage Lenders Ease Requirements

According to a report prepared by Ellie Mae, a mortgage technology company, the average FICO credit score for approved mortgage loans dropped to 727 in December 2013. It was 748 a year earlier.

The average credit score for home loans backed by Fannie Mae and Freddie Mac also dropped a little; December 2013 borrowers had an average credit score of 756, down from December 2012’s average of 761.

Refinance mortgages backed by Fannie Mae or Freddie Mac were approved with an average credit score of 729 in December 2013; this was a significant drop from the average credit score of 763 in December 2012.

Only 46 percent of mortgage applicants approved had credit scores above 750 in December 2013 while approximately 57 percent of applicants had credit scores over 750 a year earlier.

Biggest real estate story of 2013: Homeowners gain $2.2 trillion in equity

Homeowners gain $2.2 trillion in equity share this Dec 27, 2013 The fact that U.S. homeowners gained $2.2 trillion in equity during the year ending Sept. 30 as home values rebounded was the “biggest story in American real estate in 2013,” but hasn’t gotten the attention it deserves, columnist Ken Harney says. Harney says the gains are crucial because as more homeowners get out from underwater, they can sell without bringing money to the closing table, borrow against their homes to help pay for home improvements and other expenses, or refinance their mortgages. Source: kpbj.com.

Best Buy Cities: Where to Invest In Housing In 2014

Buying a home can be a great investment, as investors gobbling up properties over the last few years–when prices and mortgage rates were at the bottom–well know. Now, with homes prices and rates ticking steadily back up, investors are backing away from the market, leaving more room for the rest of us.

Perhaps you fear you’ve missed the best time for buying housing. Prices were low last year, but there are still deals to be had. The good news is that less competition for housing and an overall less-crazed market than in 2013, as I wrote about in Housing Outlook 2014: 10 Predictions From The Experts, can make for fairly decent timing for smaller-time investors. The key is to buy where the prices are still low, in cities with a lot of growth potential.

Whether you’re looking to get into a first home that you’ll live in for a few years, or simply buy a fixer-upper that you can rent out right away, there are still plenty of cities where your money is a fairly safe bet. We teamed up with Local Market Monitor, which tracks home prices and local economic factors in more than 300 housing markets, to put together a list of the Best Buy Cities–the top 20 housing markets to invest in for 2014. To come up with this list, Local Market Monitor pulled data for the largest 100 metropolitan statistical areas (a geographical designation used by the U.S. Census) with populations of at least 575,000. From there, the choices were ranked primarily on four factors: population, home prices, and the local jobs economy. Each of our Best Buy Cities have high population and job growth, relatively low home prices, and are still considered under-valued (although in every case except Virginia Beach-Norfolk, Va., home prices have gone up). This makes them fairly low-risk investment opportunities for buyers who are smart and know not to overpay.

The key to coming up with this list is a proprietary measure that Local Market Monitor dubs the “Equilibrium Home Price.” Basically, it tracks what the average price for a market should be, if speculation, weird distortions in local income, and other factors (like the housing collapse) weren’t present in the market. The measure presumes that prices will eventually return to this level. When homes are far under the equilibrium price, investors are getting a good buy and can expect to make a good return. The other important consideration for investors is, of course, a healthy local economy. After all, there is zero point in purchasing a home in a market where the population is fleeing. That’s why Best Buy Cities are places where opportunities are growing.

“We are at a stage in the economic cycle where job growth–and demand for housing–is accelerating in some markets,” says Ingo Winzer, founder of Local Market Monitor. “The types of jobs created are often lower-paying, most suitable for renters, younger people who are willing to move from somewhere else and who don’t want to own a house right now but might have a young family and would like to rent one.”

Fort Worth-Arlington, Tex., and Dallas-Plano-Irving, Tex., top the list of our Best Buy Cities, at No. 1 and No. 2, respectively. Both cities offer homes that would be within reach for middle-class Americans, at $168,383 in Fort Worth-Arlington and $180,645 in greater Dallas. Prices in greater Fort Worth are considered 20% below their actual value, according to Local Market Monitor. Homes in the greater Dallas region are 12% down, so less off, but they are expected to rise more–29%–over the next three years.

For buyers who intend to rent out their homes, the populations in these cities are growing at a healthy clip: from 2009 to 2012, at 4.9% in Fort Worth and 6.1% in Dallas. At that rate, Dallas is tied for the fastest-growing city on the Best Buy Cities list. It’s ranked fifth in terms of job growth, at 3% as of the latest Bureau of Labor Statistics stats. Driving the demand are companies like Dallas’s One Technologies, LP, an online credit monitoring marketing service that was ranked the fastest-growing private company in the area by the Dallas Business Journal.

“The total eventual returns may be higher in markets that are still under-priced right now–that’s why those are higher in the rankings–but the rental returns should be good in all of them,” Winzer says. “I particularly like the investment markets in Texas and Oklahoma, with their low unemployment rates and ability to profit for years from new shale oil and gas development.”