Developers say they’ll break ground on five — and possibly six — big condo projects next year.
The buildings will range from six to 40 stories, and all but one of the developers are from China or Canada. The one developer who says he’s still weighing whether to build a for-rent or for-sale project is domestic.
Continue reading 2017 will be the year of the condo in Bellevue and Seattle
Number of investors flipping homes returns to pre-crisis levels; big banks get back in the game.
House flipping, a potent symbol of the real-estate market’s excess in the run-up to the financial crisis, is once again becoming hot, fueled by a combination of skyrocketing home prices, venture-backed startups and Wall Street cash.
While it has been said for a long time that the U.S. is bleeding manufacturing jobs overseas, particularly to China, some businesses have been moving operations the other way round.
And now, the head of a leading Chinese glass maker making the same move has openly questioned if his country really is such a lucrative destination for offshore factories, reports Hong Kong newspaper the South China Morning Post.
Overall speaking, the tax burden for manufacturers in China is 35% higher than in the U.S., Cao Dewang told China Business Network. He added that a combination of cheap land, reasonable energy prices and other incentives means that, despite higher manufacturing costs, he can still make more money by making glass in the U.S. than by exporting Chinese-made panes to the U.S. market.
His company, Fuyao Glass, has invested over $1 billion stateside, according to the Post, the most significant move of which is opening its U.S. factory in the Ohio town of Moraine, a suburb of Dayton, back in October. The glass maker is re-purposing the town’s former General Motors assembly that had been standing empty since late 2008, as the Dayton Daily News reports.
According to Ohio TV station WDTN, the plant now employs a workforce of almost 2,000, and Cao expects that the fully operational facility will employ up to 3,000 workers.
Wage and transportation costs are getting higher in China, Cao says. Compared with four years ago, labor wages [in China] today have tripled, he told China Business Network. Meanwhile, transportation in the U.S. costs the equivalent of less than one yuan ($) per kilometer, while road tolls [in China] are higher, he added, pointing out that some mid- and small-sized Chinese enterprises have already started moving to Southeast Asian countries like Vietnam and Cambodia for cheaper wages and materials.
Fuyao is not the first Chinese business making the move across the Pacific in recent years. According to the Wall Street Journal, Chinese companies invested over $20 billion in the U.S. last year -from a practically nonexistent total investment back in 2006.
And yet, it would probably be mistaken to write off the world’s second largest economy as a manufacturing powerhouse once and for all. As Fortune reported in early December, the latest data indicates that China’s manufacturing sector is in its strongest position in some years, buttressing the country’s economic growth along the way.
Written by Kevin Lui – Fortune.com – December 22, 2016
Original Source: http://fortune.com/2016/12/22/us-china-manufacturing-costs-investment/
Chinese state-run media lauded Donald Trump Tuesday after a phone call between him and President Xi Jinping, saying that the president-elect’s emergence could mark a “reshaping” of Sino-American relations. The pair spoke Monday, when Xi said that the two powers needed to co-operate and Trump’s office said the leaders “established a clear sense of mutual respect for one another”.
On the campaign trail Trump frequently demonized Beijing, but questions have been asked whether his conduct in the White House will match his promises as a candidate. Monday’s conversation was “diplomatically impeccable and has bolstered optimism over bilateral relations in the next four years”, China’s frequently nationalistic Global Times newspaper said in an editorial. Barack Obama, whose foreign policy pivot to Asia alarmed Beijing, was “profoundly affected” by the Cold War-shaped outlook of American elites, the paper said, but Trump’s views “have not been kidnapped by Washington’s political elites”. “Trump is probably the very American leader who will make strides in reshaping major-power relations in a pragmatic manner,” it added, saying his ideology and experience “match well with the new era”.
It was a sharp contrast to the same newspaper’s editorial the day before, which baldly warned the incoming president not to follow through on campaign-trail promises to levy steep tariffs on Chinese-made goods or Beijing would take a “tit-for-tat approach” and target US autos, aircraft, soybeans, and iPhones. But the president-elect’s ambiguous and sometimes contradictory views on key questions on the relationship between the world’s two largest economies, including trade, the South China Sea and North Korea, have cast a pall of uncertainty over how he will manage it. While campaigning,
Trump went as far as calling the Asian giant America’s “enemy”, accused it of artificially lowering its currency to boost exports, threatened to impose tariffs of 45 percent, and pledged to stand up to a country he says views the US as a pushover. But he also indicated he is not interested in getting involved in far-off squabbles, and decried the proposed Trans Pacific Partnership (TPP) free trade deal, which encompasses several other Asian countries and has been seen as an effort to bolster US influence, for costing American jobs. TPP has been signed by the US but not ratified by the Senate, where its chances are seen as poor.
Tuesday’s editorial in the government-published China Daily newspaper called the Xi-Trump chat “propitious”, noting that Beijing is “understandably relieved that the exclusive, economically inefficient, politically antagonizing TPP is looking ever less likely to materialize”. Instead, Washington should consider joining the China-backed Regional Comprehensive Economic Partnership (RCEP), a free trade area encompassing the Southeast Asian grouping ASEAN, China, India, Japan, South Korea, Australia and New Zealand. Something of a mirror image to the TPP, it includes six of the putative Washington-led grouping’s 12 members.
Donald Trump has been President Elect for less than a week and everything is already falling into place. Both Canada and Mexico plan to renegotiate NAFTA. Mexico is considering talks about the wall and is preparing for mass deportation. Russia wants to help us destroy ISIS. China thinks our relationships will be better. The UK is very optimistic of relationships with the US. TPP was declared dead. All good things. Meanwhile, our mainstream media still hasn’t accepted the fact that he will be our next president.
The Chinese in general admire strength tempered with respect, protocol and politeness. Donald Trump is well and truly capable of all that.
November 14, 2016 — 8:00 AM PST – Bloomberg News:
If they were anywhere else in Beijing, the five young women in cowboy hats and matching red, white, and blue costumes would look wildly out of place.
But here at the city’s biggest international property fair — a frenetic gathering of brokers, developers and other real estate professionals all jockeying for the attention of Chinese buyers — the quintet of wannabe Texans fits right in. As they promote Houston townhouses (“Yours for as little as $350,000!”), a Portugal contingent touts its Golden Visa program and the Australian delegation lures passersby with stuffed kangaroos.
Welcome to ground zero for the world’s largest cross-border residential property boom. Motivated by a weakening yuan, surging domestic housing costs and the desire to secure offshore footholds, Chinese citizens are snapping up overseas homes at an accelerating pace. They’re also venturing further afield than ever before, spreading beyond the likes of Sydney and Vancouver to lower-priced markets including Houston, Thailand’s Pattaya Beach and Malaysia’s Johor Bahru.
The buying spree has defied Chinese government efforts to restrict capital outflows and shows little sign of slowing after an estimated $15 billion of overseas real estate purchases in the first half. For cities in the cross-hairs, the challenge is to balance the economic benefits of Chinese demand against the risk that rising home prices spur a public backlash.
“The Chinese have managed to accumulate very large amounts of wealth, and the opportunities to deploy that capital in their own market are somewhat restricted,” said Richard Barkham, the London-based chief global economist at CBRE Group Inc., the world’s largest commercial property brokerage. “China has more than a billion people. Personally, I think we have just seen a trickle.”
While a dearth of government statistics makes it difficult to gain a comprehensive view of cross-border real estate investments, most industry projections point to a surge in Chinese purchases. Ping An Haofang, an online real estate platform owned by China’s second-largest insurer, says its $15 billion first-half estimate, derived from market data, nearly matches the figure for all of 2015.
Fang Holdings Ltd., the country’s most popular property website, predicts overseas buying on its system will increase 130 percent this year, while transactions through September at Shenzhen World Union Properties Consultancy Inc., China’s largest broker for new-home sales, were already 50 percent above last year’s level. The country overtook Canada as the largest source of residential purchases in America last year after an estimated $93 billion of buying from 2010 to 2015, according to a May report by the Asia Society and Rosen Consulting Group.
It adds up to the world’s biggest-ever wave of overseas residential property investment, according to Susan Wachter, a professor at the University of Pennsylvania’s Wharton School who specializes in real estate markets. While Japan had a similar boom in the 1980s, it was mainly focused on commercial buildings, Wachter said.
Today’s Chinese buyers have a long list of reasons to flock overseas. The yuan’s slump is eroding their purchasing power, while returns on local financial assets — including stocks, bonds and wealth-management products — are shrinking as the $11 trillion economy slows.
Chinese real estate, meanwhile, has grown increasingly out of reach after a speculative boom sent domestic home prices to all-time highs. Residential property values in Shenzhen, Beijing and Shanghai all jumped more than 30 percent in the year through September, according to the National Bureau of Statistics.
“Properties in Shanghai are ridiculously expensive,” Chen Feng, 38, said as he evaluated prospects at a property fair in Shanghai in September, lured by television commercials for the event the night before. “With the amount of money it takes to buy a small apartment here, I can buy a building of apartments in many places in the world.”
That line of reasoning is nothing new, of course. Sydney, Vancouver, Hong Kong, London and a handful of other cities have long been popular destinations for Chinese buyers.
The difference now is that those traditional hotspots are starting to lose their appeal, due to soaring prices and new measures to deter an influx of overseas money. In Hong Kong, the government enacted a 30 percent tax on foreign property owners this month after Chinese demand pushed home values toward record highs.
The risk of similar measures in other cities can’t be ruled out as politicians including Donald Trump, the U.S. president-elect, tap into local discontent over rising living costs, according to CBRE Group’s Barkham.
Ocean Views
Chinese buyers have responded by branching out to cheaper cities. In the U.S., they’re increasingly searching for properties in Houston, Orlando and Seattle, which displaced San Francisco in the first quarter as the third-most viewed U.S. market on Juwai.com, a Chinese search engine for offshore real estate.
At the national level, countries in Southeast Asia have grown more popular. Juwai.com’s queries on Thailand are surging at a 72 percent annual rate, helping it surpass Britain as one of the top five most-targeted destinations worldwide earlier this year.
In Pattaya Beach, Chinese investors have snapped up 20 percent of the luxury condos on offer from Kingdom Property Co. over the past year. The properties offer Gulf of Thailand views for as little as $120,000, or less than a quarter of what buyers would pay for a typical apartment in central Shanghai, according to Han Bing, a 30-year-old anchor in Chinese television shows who doubles as a sales agent for the Bangkok-based developer.
“It’s a cool bargain for a retirement plan,” Han said.
Capital Controls
In the Malaysian state of Johor, across the Northern border of Singapore, major Chinese builders including Country Garden Holdings Co., Greenland Holdings Corp. and Guangzhou R&F Properties Co. are all developing new projects. Country Garden agents handed out fliers for the firm’s $37 billion Forest City development at the Beijing property fair in September, advertising permanent property rights, zero inheritance taxes, long-term residence visas and high-quality hospitals.
One challenge for Chinese investors is getting money out of a country that caps individuals’ foreign-currency purchases at $50,000 a year. While that limit hasn’t always been strictly enforced, the yuan’s slump is prompting policy makers to clamp down. This year, they’ve banned the use of friends’ currency quotas, curbed on the cross-border activities of underground banks and asked lenders to reduce foreign-exchange sales.
Still, alternative routes abound. Many business owners finance their homes through offshore trading companies, while some Chinese developers allow clients to pay for overseas units in yuan. Foreign-currency mortgages also play a role, helping to fund more than 80 percent of China’s international property purchases, according to an estimate by Fang Holdings based on user searches and surveys.
Planning Ahead
“Where there’s a will, there’s a way,” said David Ley, a professor at the University of British Columbia who wrote a book on the flood of wealthy migrants from east Asia in the 1980s and 1990s.
This year’s purchases could be just be the tip of the iceberg. Chinese holdings of global real estate, including commercial properties, will probably swell to $220 billion by 2020 from $80 billion in 2015, according to Juwai.com.
As the first generation born after China’s opening in the late 1970s approaches middle age, many of them want an overseas base for family members to travel, study and work. Chinese parents with children at foreign schools have been a major source of demand, accounting for an estimated 45 percent of cross-border buying, according to Fang Holdings.
Zha Liangliang, a 31-year-old owner of commercial wheat farms in China’s eastern Jiangsu province, said he purchased a $587,000 apartment in Sydney in August and plans to add five more before sending his children to high school in Australia. He’s flying to the country this month to view homes and farmland, hoping to buy before the yuan weakens any further.
For some investors, it’s never too early to pull the trigger. Richard Baumert, a partner at Millennium Partners Boston, tells the story of a 33-year-old Chinese man who purchased a luxury home for his future children in August, convinced they’re destined to attend one of the city’s prestigious universities.
The buyer shelled out $2.4 million for the property, Baumert said, unfazed by the fact that he’s single and it could be two decades before he has kids old enough for college.
Original Source:
Note: There is no need to be overly concerned about the new Trump Administration, as mentioned in the article. New opportunities for good deals will be possible. Correct understanding and guidance is important. We are here to assist, just send us a message: [email protected]
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Chinese Cash Pours into U.S. Real Estate
Site on San Francisco Bay reflects a move into new development, beyond buying existing commercial properties
Chinese developers are planning a $1 billion commercial project on this San Francisco Bay property. Photo: Greenland USA
ByEliot Brown -Aug. 30, 2016 11:02 a.m. ET
For eight years, a pair of local developers gradually readied a 42-acre strip of waterfront land 10 miles south of downtown San Francisco for a major project, steering it through local land-use approvals.
Now, a group of major Chinese developers is poised to do the heavy lifting. The venture of Greenland Holding Group,Ping An Trust and other investors paid$171 million last monthfor the site that juts into San Francisco Bay.
The new owners are planninga more than $1 billion development aimed at biotechnology companies,an industry flourishing in the area. “We are pretty confident about the local market and particularly about the research-and-development market,” said Taotao Song, chief executive of the venture.
Over the past three years, Chinese investors have plowed money into some of the highest-profile developments in the U.S. Other cities with projects underway or in the pipeline include New York, Boston, Chicago, Los Angeles and Miami.
The flow of cash from China into U.S. commercial property is continuing unabated as companies seek to diversify outside of China at a time when confidence is fading in their local real-estate markets,real-estate executives say.
President Xi Jinping’s anti-corruption campaign has also compelled Chinese investors to seek projects abroad as a way to hedge against a possible crackdown to their business at home. Officials have blocked property sales and detained companies’ executives during investigations.
In the first half of 2016, completed U.S. commercial property purchases by China-based investors were up 19% over a year earlierto $5 billion, according to data tracker Real Capital Analytics Inc. Including deals under contract that haven’t been finished, Chinese investors have committed $12.9 billion this year, nearly matching the $14 billion in all of 2015. The rate of increase does appear to be slower this year, given that in 2014 there was just $3.4 billion in sales to Chinese investors, according to Real Capital.
Investments include office towers such as Manhattan’s 1285 Avenue of the Americas–in which China Life LFC -2.02 % Insurance Co. bought a partial stake–andAnbang Insurance Group Co.’s $6.5 billion deal to buy Strategic Hotels& Resorts Inc., which hasn’t closed.Anbang also led an aborted $14 billion purchase of StarwoodHotels & Resorts Worldwide Inc. HOT -0.37 %
Still, there are some headwinds back home for Chinese investors as officials seek ways to stanch the flow of money out of China. For those real-estate investors that do get money out, developing new buildings is a main focus, given that it offers far higher returns but also more risk than buying existing buildings.
“The vast majority are looking for development opportunities,” said Stephen Collins, who oversees a global capital markets group at real-estate investment-services company JLL. TheChinese companies have experience with development at home, and believe they “can make more money buying the land, building it and selling it,” than just buying an existing tower, he said.
Projects controlled or partly owned by Chinese companies include a development to create Chicago’s third-tallest tower;a planned tower that would be San Francisco’s second-tallest building; a cluster of giant mixed-use projects in downtown Los Angeles; and a planned skyscraper in downtown Bostonby Chinesedeveloper Gemdale Corp. 600383 3.62 %
Earlier this month, in one of the flashiest investments yet, China’s Shanghai Municipal Investment said it was joining with New York-based Extell Development Co. to build the $3 billion Central Park Tower. The condo skyscraper is set to rise 300 feet taller than the Empire State Building to become the tallest apartment tower in the U.S.
A rendering of Greenland Group’s $1 billion Metropolis development in Los Angeles. Photo: Greenland USA
For all of these projects, a big risk is timing. The U.S. is seven years into an economic growth cycle, making many wonder how much longer the good times can last. Much of this concern is focused on Manhattan’s luxury-condo market, where Chinese companies have funded a large crop of towers that are just being built, despite a slowdown in sales and widespread concerns about a condo glut.
The largest Chinese developer in the U.S. is Greenland Group, which has a $1 billion cluster of towers named Metropolis being built in Los Angeles. The company also owns 70% of a$6 billionapartment development in the New York borough of Brooklyn, where three towers have sprouted since it first invested in 2014. More are on the way.
Greenland executives predicted in mid-2014 that they would double their pipeline within a year and have considered numerous sites throughout thecountry. But the company ended up being less active thanexpected:its first U.S. deal since mid-2014 was the San Francisco Bay site it purchased for the biotech center.
The seller of that site was a venture of Shorenstein Properties and SKS Partners, which bought it in July 2008 for $85 million andwon city approval for a 2.3 million-square-foot development.
Greenland and its partners plan to start moving ahead on a 500,000-square-foot first phase as soon as infrastructure work being done by the city of South San Francisco is completed in mid-2018. Greenland said the venture would begin construction whether or not any of the space is leased beforehand.
–Esther Fung contributed to this article.
Original Source: http://www.wsj.com/articles/chinese-cash-pours-into-u-s-real-estate-1472569340
(Aug 3, 2016) ATTOM Data Solutions, released its 2016 Schools and Housing Report, which shows that homes in zip codes with at least one good elementary school have higher values and stronger home price appreciation over the long-term than homes in zip codes without any good elementary schools — where homes lost more value during the housing downturn but have seen stronger appreciation during the housing recovery of the last five years.
For the report, ATTOM Data Solutions analyzed 2016 home values and price appreciation along with 2015 average test scores in 18,968 elementary schools nationwide in 4,435 zip codes with a combined 45.9 million single family homes and condos. For purposes of this report, a good school was defined as any with an overall test score at least one-third above the state average (see full methodology below).
Out of 1,661 zip codes with at least one good school, the average estimated home value as of July 2016 was $427,402, 77 percent higher than the average home value of $241,096 in 2,774 zip codes without any good schools.
“While good schools are one of the top items on most home-buyer checklists because of the quality-of-life benefit they provide, this report shows that high-performing schools also come with a financial benefit for homeowners in most markets — at least over the long term,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Meanwhile, home prices in zip codes without any good schools tend to be more volatile, which might work to a homeowner’s financial benefit in the short-term but not over the long-term of at least 10 years.”
83 percent of metro areas post higher home values in zips with good schools
Out of 173 metropolitan statistical areas analyzed for the report, 143 metros (83 percent) had higher average home values in zip codes with good schools than in zip codes without good schools, including Los Angeles (65 percent higher); Chicago (65 percent higher); Atlanta (91 percent higher); New York (52 percent higher); and Miami (31 percent higher).
Metro areas where home values in zip codes with at least one good school were at least 95 percent higher than home values in zip codes without any good schools included Birmingham, Alabama (169 percent higher); Flint, Michigan (129 percent higher); and St. Louis (99 percent higher); Detroit (97 percent higher); and Baltimore (95 percent higher).
“In my experience, buyers will almost always choose to buy a home in a good school district. In turn, this creates greater demand for homes in high-performing school districts and causes these sub-markets to appreciate in value at higher rates than other neighborhoods,” said Matthew Gardner, covering the Seattle market — where average home values were 64 percent higher in zip codes with goods schools than in zip codes without good schools. “Interestingly, we see demand for these homes from buyers without school-aged children as well because they look at the school district as an added layer of protection should home prices start to soften.
Homeowners gained $51K more since purchase in zips with good schools
Homeowners in zip codes with at least one good school have gained an average of $74,716 in value since purchase, an average return on investment of 32.0 percent. Meanwhile homeowners in zip codes without any good schools have gained an average of $23,311 in value since purchase, an average return on investment of 27.5 percent.
Average ROI for homeowners was higher in zip codes with at least one good school than in zip codes without any good schools in 114 of the 173 metro areas analyzed for the report (66 percent), including Chicago, Atlanta, New York, Miami and San Francisco. Notable exceptions where homeowner ROI was higher in zip codes without any good schools included Los Angeles, Riverside-San Bernardino in Southern California, Sacramento, Orlando and Washington, D.C.
Home price appreciation more volatile in zips without good schools
The report also found that home price appreciation has been more volatile in zip codes without any good schools over the past decade compared to zips with at least one good school.
Year-to-date 2016 median home prices in zip codes without any good schools on average are still 1 percent below median home prices during the same time period in 2006, while median home prices in zip codes with at least one good school are up 4.5 percent on average compared to 10 years ago.
10-year home price appreciation in zip codes with good schools outpaced 10-year HPA in zip codes without good schools in 128 of the 173 metro areas analyzed for the report (74 percent), including Los Angeles, Chicago, Atlanta, New York and Miami.
Meanwhile, home prices in zip codes without good schools dropped more precipitously during the housing downturn. Between 2006 and 2011 median home prices in zip codes without any good schools decreased an average of 28.9 percent while median home prices in zip codes with at least one good school decreased 23.0 percent during the same time period.
Home price appreciation in zip codes without any good schools has outpaced HPA in zip codes with at least one good school over the past five years during the real estate recovery (47.9 percent increase versus 42.2 percent increase respectively).
Ranking of “Good School Bargain” zip codes
The report also ranked 117 zip codes as “Good School Bargains.” All of these zip codes had at least one good school along with a year-to-date 2016 median home sales price of $150,000 or lower. School scores and home prices have improved compared to one year ago and five years ago in all of these zip codes, with the ranking based on 10-year home price appreciation, from lowest to highest (lowest indicating the best bargain relative to the peak).
The Top 10 zip codes with good schools that represent the best bargain home buying opportunities nationwide include zips in Chicago; Cleveland; Saginaw, Michigan; Milwaukee; Tampa-St. Petersburg; Orlando; Las Vegas; Homosassa Springs, Florida; and Riverside-San Bernardino, California.
Report methodology
For this analysis ATTOM Data Solutions (parent company of RealtyTrac) looked at test scores for 18,968 elementary schools nationwide in 4,435 zip codes with a combined 45.9 million single family homes and condos. School test scores are from each state’s Department of Education in 2015. Test scores are based around the test average of each state with the state average being a score of 1. For purposes of this report, a good school was defined as any with an overall test score at least one-third above the state average (1.33 or higher). The highest scoring school in each zip code was used for the zip code analysis. Home value and median price data is from publicly recorded sales deeds and mortgages for single family homes and condos. Home value data is as of July 2016, and median home prices are based on January to June 2016 sales compared to the same time period in previous years.
July 28, 2016 — ATTOM Data Solutions (the new parent company of RealtyTrac), the nation’s leading source for comprehensive housing data, today released its June and Q2 2016 U.S. Home Sales Report, which shows that single family homes and condos sold for a median price of $231,000 in June 2016, up 6 percent from the previous month and up 9 percent from a year ago to a new all-time high — 1 percent above the previous peak of $228,000 in July 2005.
June was the 52nd consecutive month were U.S. median home prices increased on a year-over-year basis.
The ATTOM Data Solutions home sales report is based on publicly recorded sales deeds collected and licensed by ATTOM Data Solutions in more than 900 counties nationwide accounting for more than 80 percent of the U.S. population.
30 percent of local metro markets reach new all-time price peak in June
Out of 130 metropolitan statistical areas analyzed for the report, 39 (30 percent) reached new all-time home price peaks in June, including Dallas ($240,156), Atlanta ($192,000), Seattle ($385,000), Minneapolis ($235,950), and St. Louis ($190,209).
“Home prices in the greater Seattle area continue to appreciate above average rates. This is clearly an indication of not only continued faith in the housing market, but also the buoyancy of the regional economy,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “However, this appreciation comes at a cost. Housing affordability in the region is getting tested — specifically in the market areas that are within easy reach of the major employment centers. This is having particularly negative effects on first-time buyers who are getting priced out of the market. Unless we see a rapid increase in the number of homes for sale, this significant demographic will continue to be left behind.”
Since the nation’s home prices bottomed out in 2012, a total of 63 of the 130 markets analyzed (48 percent) have reached new all-time home price peaks.
“The all-time home price highs nationwide and in many local markets are being enabled by historically low mortgage rates — which are falling once again this year,” said Daren Blomquist, senior vice president at ATTOM Data Solutions (formerly RealtyTrac). “It is likely that some of the most interest rate sensitive local markets will see home price appreciation knocked down when the low rate rug is finally pulled out from under the housing recovery. We are seeing signs of weakening appreciation in many bellwether markets already in spite of the rock-bottom rates.”
By Daniel Goldstein, Personal Finance reporter for MarketWatch.com– Published: July 2, 2016 10:53 a.m. ET
Despite Brexit upheaval and stock market losses, U.S. real estate market appears on much more solid footing in 2016
When it comes to investing in the stock market, you may lose your shirt, but you probably won’t lose your home. In fact, when the equity market gets rough, real estate tends to be a life raft for investors seeking safety.
“Real estate is Americans’ preferred investment for money that they won’t need for at least 10 years and that hasn’t changed,” said Greg McBride, chief financial analyst with New York-based Bankrate.com. “Nervous investors always look to real estate rather than shy away from it in times of volatility.”
While global uncertainty spreads and stocks fall worldwide in the aftermath of the British referendum to leave the European Union, it doesn’t necessarily mean d©j vu all over again, at least when it comes to a repeat of the real estate plunge of 2007. The crash that began that year accelerated sharply following the 2008 rout of the equities market, when home prices in late 2011 were down more than 20% from their peak in spring of 2007.
“There is a lot of Brexit panic going on,” said Francis Greenburger, chief executive of Time Equities Inc., a real estate development firm in New York. “When you realize that this is going to play out over years, and nothing substantive is going to change in the short-term, it seems like an overreaction,” he said.
As a result, here’s why you shouldn’t be panicking post-Brexit if you’re looking to buy or sell a home:
Interest rates should stay low, and could go even lower.
And as markets reel post-Brexit vote, the pace of further Federal Reserve rate increases is likely to slow further, according to Kevin Finkel, senior vice president of Resource America Inc. REXI, -0.10% , a real-estate investment trust in Philadelphia.
“If the Fed had a decision to make to raise interest rates, it gets pushed back further now,” he said. “The slower growth in Europe that Brexit will likely cause and the worldwide global slowdown as a result will force the Feds to drag their feet.”
The Fed was already considering holding off on a summer rate increase when the news was announced earlier this month that the U.S. created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, raising doubts about the strength of the economy.
“The chances are the Fed is reading the (Brexit) signs as being negative to growth and activity,” said Time Equities’ Greenburger. “As long as inflation remains in check, the Fed is going keep their powder dry and leave rates as they are,” he said.
The 10-year Treasury, which mortgage rates follow, fell as much as 20 basis points since the results of the Brexit vote were announced. For someone in the market for a $200,000 home, the pre-vote rate of 3.46% would have cost $715 for a 30-year fixed-rate mortgage with a 20% down payment, according to Zillow’s mortgage group. A 20 basis point drop would make that monthly cost $697.
Finkel also notes that the uncertainty in Europe will mean the U.S. will continue to be a haven for real estate investors, pushing prices higher. Indeed, a survey of 700 Chinese real estate investors by the firm East-West Property Advisors Ltd. shortly after the Brexit vote results were announced, showed that 41% of those polled indicated they’d be more willing to invest in the U.S. residential market rather than in the U.K. “Chinese buyers are increasingly interested in the American real estate market because of the perceived safety that places such as New York and San Francisco, now offer compared to London,” the survey showed.
That could help millions of Americans who were unable to refinance because their homes were underwater (meaning they owed more on the home than it was worth). Research firm Black Knight estimates that as many as 7.4 million borrowers could refinance their homes and Brexit could mean even lower interest rates when they do so.
Moreover, as interest rates stay low, the impact of “rate-shock” when short-term adjustable rate mortgages (ARMs) readjust will be minor compared with what happened between 2007 and 2012, when many Americans could no longer afford their new housing payments and defaulted.
One downside to the low interest rates however is that private buyers of mortgage pools, the so-called mortgage-backed securities, are staying away from the market because rates of return are so low. That hurts liquidity and prevents banks from making more loans. As a result, government-sponsored enterprises have to buy up the majority of the loans to create liquidity in the market. According to the Housing Finance Policy Center of the Urban Institute in Washington, D.C., the private label securitization market was valued at $718 billion in 2007 and plunged to just $59 billion in 2008. It was valued at just above $64 billion in 2015.
There’s less risk of a new mortgage bubble
The percentage of loans in foreclosure nationally is the lowest level since April of 2007, according to Black Knight. Foreclosures reached a peak of 4.6% in 2011 at the height of the real estate bust. This year, just 575,000 homes were in active foreclosure in May, down from 800,000 a year ago, a 29% drop, according to Black Knight. While new foreclosures starts last month of 62,100 were up slightly from a 10-year low set in April, they are still 20% lower than a year ago, Black Knight said.
“The recent rise in bank repossessions represents banks flushing out old distress rather than new distress being pushed into the pipeline,” said Daren Blomquist, vice president of Irvine, Calif.- based RealtyTrac, a real-estate research company.
Unlike the 2005 to 2012 mortgage meltdown, when so-called liar loans and exploding ARM’s flooded the market, the subsequent pullback in credit may have been overly tight, but it does mean in 2016 there are fewer real estate bubbles waiting to pop. While it’s true there are markets that have seen incredibly inflated real-estate values such as San Francisco and New York, it’s not fueled by unsustainable and loose credit standards.
“The changes that have taken place over the past five to seven years have built a more stable foundation” in the mortgage industry, said Michael McPartland, a managing director and head of residential real estate for North America at Citigroup’s private bank. “There just aren’t a lot of the exotic products like interest-only [loans] and super-high loan-to-value [mortgages],” he said. “If things slow down, there will be a contraction, but not a pop.”
McPartland says with slow wage growth and high student loan burdens it may be harder for younger borrowers to afford a 20% down payment and monthly interest payments that are principal and interest, instead of just interest-only, but the flip side is increased home equity, so home buyers are less likely to leave the keys on the counter and walk away if things go bad.
Help for first-time home buyers
In 2014, the Federal Housing Administration began reducing mortgage insurance premiums on loans by an average of $900 a year, in an effort to nudge first-time home buyers and millennial borrowers who might not have much cash for a down payment to finally enter the housing market.
Those other federal moves include Fannie Mae and Freddie Mac making lower down payment loan options available to more borrowers. In 2014, the agencies began to buy loans with just a 3% down payment, or 97% loan-to-value ratio. Fannie Mae also announced in 2015 that it would allow income from a non-borrower household members to be considered as part of a loan applicant’s debt-to-income ratio. That could help some borrowers, who might have family members on Social Security or disability living with them, or a renter in a basement apartment, to boost their income levels and help them qualify for a loan.
Lower oil prices
At the end of 2008, gasoline prices, which had risen to a record $4 a gallon nationwide that summer, had crashed to under $2 a gallon. In that case, the cheap gas (and diesel) wasn’t a good thing, as the worldwide economy was shuddering to a halt.
While the U.S. economy (and world economy) is slowing down, the lowest gas prices since 2009, with the national average now close to $2 a gallon is likely to help the housing market.
“The continuing drop in gas prices is freeing up valuable disposable income,” says Resource America’s Finkel, which can help Americans absorb higher rent payments, or move up to a more expensive property.
Job growth
While jobs typically are a lagging indicator of an economic downturn, the U.S. has had a slow- but- steady rate of job creation for the past five years, though that appears to be tailing off in recent months. The U.S. had been averaging more than 200,000 new jobs a month since 2014 until a recent slowdown since March that’s seen hiring taper off to a 116,000 monthly range.
“The recession risks are elevated, but there’s not an abundance of people seeing one over the hood of the car,” said Mark Hamrick, senior economic analyst at Bankrate.com. Hamrick expects GDP growth to rebound in the second quarter at 2% for the rest of the year, which he said will be enough to support expansion in the housing market.
“I don’t think anybody is looking at the payroll numbers and deciding it’s a bad time to buy a home,” he said.
(With additional reporting by Andrea Riquier, Greg Robb and Jeffry Bartash)
Original Source Here: http://www.marketwatch.com/story/5-reasons-a-2009-style-real-estate-meltdown-is-unlikely-now-2015-08-25?link=afterbell
