Foreign Buyers Reshaping Bay Area and U.S. Housing Market
Posted on April 26, 2013
With foreign buyers flocking to places like San Francisco, Silicon Valley and Los Angeles to invest in U.S. real estate, the trend is beginning to have an impact on the housing industry – everything from increasing sales and prices to changing how developers design new homes and how brokerages market to off-shore investors.
According to the National Association of Realtors, U.S. home sales by international buyers grew an astounding 54 percent just in the past two years to $82.5 billion in 2012. Interestingly, foreign buyers spend almost twice as much on homes as domestic buyers.
One of the fastest growing groups of foreign buyers has been Chinese investors, who now are second only to Canadian buyers when it comes to purchasing U.S. real estate. The percentage of Chinese investors has more than doubled since 2007 and now makes up 11 percent of all foreign buyers.
Affluent Chinese residents are facing increasing limitations from their government on purchasing real estate as China battles inflation and what the government and many investors fear might be a real estate bubble. Properties in the U.S., even in more expensive Silicon Valley communities, are considered relatively cheap compared to escalating property values in China’s Guangdong Province, boasting 4 of the top 10 wealthiest cities in China, per a 2011 study. The US Housing commentary presented by Coldwell Banker President Rick Turley presented in Shanghai in December 2012 reinforced the same – a surprising amount of wealthy Chinese investors focused on America, and specifically focused on the best schools we provide.
That combination of spiraling real estate prices and growing limitations by the Chinese government are prompting many well-heeled citizens to look overseas for places to invest and perhaps relocate. The trend has led to a rapid growth of Asian populations in Bay Area cities, such as Cupertino, where more than half of the residents are Asian, according to the U.S. Census Bureau.
Given the increase in off-shore buyers – and their proclivity to buy more expensive properties – it’s no wonder that the real estate industry is taking notice. A recent story in the Wall Street Journal reported that new home developers are trying to appeal to foreign buyers through the design of their properties.
According to the Journal,new buildings and residences now have kitchens outfitted with wok burners to attract Asian buyers. Others have European-style bathtubs and bidets. South American-inspired residences include sprawling balconies that can accommodate large extended families for dining and playing games.
Coldwell Banker continues to dominate the International Real Estate markets. Through our luxury Previews International program we have 741 international offices, nearly double the number of our nearest two competitors – Sotheby's and Christie's – combined!
We have a significant corporate footprint in Asia, our largest presence of all of our international markets with the exception of Canada. Coldwell Banker Previews serves buyers with 168 offices in Asia, including China, Hong Kong, India, Indonesia, Japan, Singapore, Vietnam and Macao. It's one reason why Asian buyers are often choosing to work with one of our agents.
More than two years ago we launched a sweeping international marketing program focused on Chinese and other offshore investors looking to buy high-end homes in the Bay Area. We are marketing Coldwell Banker listings worldwide through a combination of print and online advertising, targeted direct marketing, and other outreach efforts.
Given the challenges Asian buyers face in their own countries – and the view of the U.S. as a "safe haven" for offshore investors – I suspect the trend of international buyers purchasing Bay Area properties will only grow in the years ahead. And that's good for the long-term health of our local real estate market.
Below is a market-by-market report from our local offices. It is not a surprise that our Santa Cruz and Monterey County offices are now steadily reporting low inventory, multiple offers, and frustrated buyers. Our coastal communities west and south of Silicon Valley have followed a typical 6 to 9 month lag from heightened activity in San Francisco and Silicon Valley. Their reports below indicate their markets have pretty much joined the party.
North Bay – Inventory levels in Sonoma County have begun to pick up slightly, our Santa Rosa office reports. We are seeing more agents receiving successful positions with homes for sale as a result of buyers realizing they must often make offers above asking price in order to secure a home. More time is being spent in consultation with our buying clients to bring them to a winning conclusion, and the time is well spent. As a result, buyers are more prepared for what they will face as they are looking for a new home. Cash is still dominant in the marketplace, both from the perspective of all-cash offers and cash being necessary to bridge the gap between selling prices and appraisal prices. The Previews market in the wine country has seen an influx of additional buyers in the last month who are looking in the $2 million to $4 million range. In addition, recent groups of Asian buyers are becoming more active in the marketplace and are looking for both “prestige” buying opportunities as well as good value investing. One Sebastopol agent was involved in a 38-offer situation recently. About 10-20 offers are the norm on many properties, our local manager says. Many properties are attracting offers 10-15% over asking. Some buyers are bringing in extra cash for properties that don’t appraise at the agreed price. Agents in Central and Southern Marin say the buying frenzy continues with multiple offers – 30 or more in some cases – and sales well over listing price, frustrating buyers. But many buyers continue to persevere.
San Francisco – Our San Francisco Lakeside office manager says he's seeing more listings but inventory is still remarkably below levels needed for a balanced market. Multiple offers are still quite common. One property that had been overlooked at its initial price took a 5% price reduction and then sold with multiple offers 10% above the new price with at least two offers in that higher range. Over pricing, or even "right on" pricing, is continuing to prove not to be the way to get the most for the house. Our Lombard manager reports a tsunami of offers this week. One listing, a probate sale, drew 37 offers, all of them all cash. A pair of vacant flats yielded 21 offers. Another had 11 offers. Some deals are selling for 30-35% over list price. Our Market Street office continues fight a lack of inventory, which results in multiple offer situations, which results in some very happy sellers. This period agents saw multiple offers ranging anywhere from two to 15. However, several homes ratified with single offers. While some buyers are shying away from the frenzy, open houses continue to be heavily attended by those who are not intimidated by this market.
SF Peninsula – One Burlingame condo just sold with 14 offers sold at 14% over asking price. Our Burlingame manager says the cash buyer who is willing to forgo all contingencies is generally the one who secures the property. Hillsborough currently has 55 active listings and 14 pending sales. There were multiple offers this week on a Hillsborough property that went all cash at 12% over asking price. All buyers were very strong and determined to prevail. According to our Burlingame North manager, there were 158 homes in the Active Status in local market at the beginning of this month compared 172 for the same time period last year. The Menlo Park area market is super active right now, our manager says. Agents and clients are “on edge” that they might miss a new property. It is not uncommon for an agent to present two or three offers in one day. We’re still seeing the same trend continue in the Palo Alto area: Heightened demand and very low inventory. Lack of inventory continues to drive a sellers’ market in the Redwood City-San Carlos area. Not much has changed in the last few weeks and there remains a lot of frustration on the part of buyers who are not getting a home. Our Woodside and Portola Valley offices report good sales this week. Some big properties are bubbling to the surface and getting activity.
East Bay – Our Berkeley manager says agents are beginning to report more buyers changing their minds about entering this fierce market, along with a higher percentage of deals falling through as the glow of getting an offer accepted wears off and the reality of the offering price sinks in. Our Oakland-Piedmont manager says the only property ratified in the last two weeks that did not go with multiple offers was sold in two days with a pre-emptive offer. From two to 14 offers were received on price points from $199k to $1.3m. The buyers, while still in a rush to purchase a home, are not quite as frenzied in the last two weeks but not going away with money as cheap as it is right now. Stagers are busy and in some areas not able to get property staged without a two-three week wait. Over asking price and multiple offers continue to be the norm on almost every sale in the Lamorinda area. There are plenty of all cash offers. Buyers are waiving contingencies and being creative in order to be considered in this very tight market. Open houses remain very heavily attended. More inventory is coming on the market, our Pleasanton office reports, with buyer demand still high and multiple offers still happening – just not as many. Even with the increased listings it is still not enough to accommodate all the buyers still waiting to buy, according to our Walnut Creek manager. She is still seeing multiple offers with final prices going for way over asking.
Silicon Valley – The best properties are still getting lots of offers, our Cupertino manager reports. However, the number of offers per home seems to have dropped over the last week or so except for the very most popular ones. Open houses are insane, she says. Los Gatos area properties are continuing to receive multiple offers over list price. The market is moving at a feverish pace, our local manager says. Average sales price for the 95030 zip code is up 20% from the same time last year and the average sales price for 95032 zip code is up 14% from the same time last year. The Los Gatos Spring Mountain Tour was held on April 21st and attendance was stellar. The average sales price in the mountains is up 22% from the same time last year as well. In the San Jose-Almaden area, activity seemed a little slower lately, perhaps due to spring break, our local manager reports. In the Willow Glen area, nothing has changed from the previous weeks. Inventory levels are staying consistent –not shrinking not really growing. Multiple offers are the norm. Some homes are bidding way over list price while others are receiving list or a littler under. Either way the seller is in the driver’s seat. Buyers are trying all tactics to get offers accepted, including zero contingency offers along with some of the issues that come along with that. Some buyers' agents are doing whatever it takes to get in contract then try to renegotiate. This is creating a whole new set of challenges for both agents and sellers alike.
South County – Several months ago in Morgan Hill, moderately priced homes that were placed on the MLS garnered multiple offers in just a few days after being listed. Our Morgan Hill manager says agents are now witnessing that the frenzied pace has slowed down, and homes are lingering on the market for just a little longer. More properties are being listed daily. In fact, last week our local office listed and toured eight homes, up from the weekly average of just two or three homes offered for sale during the first quarter of this year. It seems that sellers have finally gotten the message that the time is right to list and sell their homes. Though it might take a little while for the market to “balance out," it would seem that all signs are pointing in that direction.
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