Chinese Buyers Flood U.S. Housing Market

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By Les Christie

Flush with cash, Chinese homebuyers are flooding into the U.S. housing market, and paying top dollar.

"The Chinese came out really huge in the past year," said Jonathan Miller of Miller Samuel, a New York-based appraiser. Chinese buyers accounted for 18 percent of the $68.2 billion that foreigners spent on homes during the 12 months ended March 31, according to the National Association of Realtors.

At a median price of $425,000, the Chinese are also buying more expensive homes than other foreign buyers, who spent a median of nearly $276,000 on U.S. homes. And nearly 70 percent of those pricey Chinese deals were made in all cash.

Nowhere is the influx of Chinese homebuyers felt more strongly than in California, where more than half of the homes sold to foreign buyers went to Chinese nationals.

Sally Forster Jones, an agent with Coldwell Banker International in Los Angeles, said Chinese are snapping up many of the trophy properties on the city's Westside. She estimates that she's sold about 10 multimillion dollar homes to Chinese nationals over the past 12 months.

"The uptick in sales to Chinese buyers started several years ago but it has increased dramatically lately," she said.

Most of her Chinese clients are wealthy industrialists or real estate tycoons, many of whom spend less than half the year in the States.

"Some have children going to school in Los Angeles and use the homes as residences for them and [as a place] to stay at when they visit their kids," said Jones.

China's gross domestic product has grown by high single-digit, sometimes double-digit rates for the past 10 years, producing a lot of cash for the country's top business people who view U.S. real estate as a safe and stable investment.

Rick Turley supervises real estate offices for Coldwell Banker in eight counties in and around San Francisco, including Silicon Valley. Many of his Chinese clients work in technology.

"The current hot spots are Palo Alto, Menlo Park and Cupertino, near Apple headquarters," he said.

Most purchase the homes to raise their family and they pay special attention to the local school systems. Turley also has Chinese clients who buy homes for their kids. Last year, a family from Shanghai bought a condo for their daughter who was attending Stanford. The daughter has since graduated and now works at Google, he said.

Many Chinese buy homes through the U.S. government's EB-5 Immigrant Investor program, which is considered a fast-track to getting a green card. To qualify, foreigners must invest at least $500,000 in a business that provides or preserves 10 jobs. This could be a home that is part of a bigger business project, such as a condo complex. Nearly 80 percent of all EB-5 visas went to Chinese nationals in 2012, according to the government.

Beyond California, Sunbelt states in general are attracting a lot of foreign attention these days. Post-housing-bust bargains in resort and retirement areas like Las Vegas and Naples, Fla. have have gotten buyers from Canada, for example.

Four states accounted for 58 percent of all foreign sales. Florida had 23 percent, California 17 percent and Arizona and Texas 9 percent each. New York, an international business center and immigration gateway, and Virginia, close to the Washington corridors of power, both came in at 3 percent.

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Chinese Buyers Flood U.S. Housing Market

How much prices exceed fundamentals by: 2.9%

Asking prices for homes in Silicon Valley's biggest city rose 22.9% over the past year even as rents fell 4.8%, helping push property values 2.9% above market fundamentals.

Kolko says strong tech-job growth is driving San Jose's property values beyond what's justified. But he believes the city is a long way away from a new bubble. After all, Trulia estimated San Jose home prices got as high as 59% above market fundamentals in 2005.

Find homes for sale in San Jose, Calif., or search listings in your area.

Photo: Wikimedia Commons

How much prices exceed fundamentals by: 5%

The City of Angels has gotten a little bit devilish when it comes to property values. Asking prices for L.A. homes shot up 13.7% over the past year -- way above a 1.6% increase seen in rents.

Kolko attributes the rising prices to strong demand sparked by good job growth and plenty of real estate investors, coupled with inventory shortages caused by lots of "underwater" homes. Those are properties where the owners can't easily sell because they owe more on their mortgages than the homes are currently worth.

Still, Trulia calculates Los Angeles property values haven't come close to the 78% over economic fundamentals that they reached in 2006.

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How much prices exceed fundamentals by: 5.1%

Home prices are rising above fundamental levels in San Antonio and other Texas cities because the state's booming energy industry is spurring demand, Kolko says. He adds that property values in much of the Lone Star State didn't fall that sharply during the housing bust, so homes weren't all that cheap to begin with.

San Antonio has seen asking prices increase 7.6% over the past year even as rents gained just 4%. That's helped push prices to 5.1% above where fundamentals suggest property values should be, according to Trulia's calculations.

Still, today's excess valuations are less than half of the 12% above fundamental levels that Trulia estimates the San Antonio market saw in 2007.

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How much prices exceed fundamentals by: 6.6%

Like San Antonio, Austin is seeing home values increase partly because of good times for the state's energy sector, according to Kolko. The city's large tech industry has also helped push average asking prices up 8.5% over the past year. That's well above the 6.3% increase in rents that Austin recorded in the past 12 months.

But the Texas capital looks like it's clear of a bubble so far. During the housing boom, Austin's home prices peaked at 12% above economic fundamentals in 2007.

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How much prices exceed fundamentals by: 9.4%

This popular residential area adjacent to Los Angeles has seen asking prices on homes shoot up 18.6% over the past year. That's far above the 3.2% gain recorded for rents.

Kolko attributes the higher property values to strong investor demand, good job growth and a dearth of available residences due to underwater homes. But again, Trulia doesn't see a bubble forming. The site estimates Orange County home values got as high as 71% above market fundamentals in 2006.

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