What affect does foreign investment have on the overall US real estate market? I asked Dr. Lawrence Yun, Chief Economist and Senior Vice President of Research at the NATIONAL ASSOCIATION OF REALTORS® speaking at the Atlanta Board of Realtors’ Showcase Tradeshow as a keynote speaker.
“Foreign investment historically accounts for 1% of the US market, heavily concentrated in Florida and California. Foreign investment today is up to 3%,’ says Yum, due to foreign investors taking advantage of the weak US dollar and the opportunities in US real estate. Foreign investment, while up significantly is still a small component of the US real Estate market as a whole.”
Lawrence Yum was confident that there would not be another recession but that recovery would be long and slow. The signs of improvement are the increased transaction activity – no price improvement, but activity is the first step. Some points made by Yum in his well articulated speech included –
- No economic stimulus needed at the time – with the deficit, there is no stimulus money and what is needed is a loosening of underwriting requirement to free up more loan qualifications and thus more purchases
- New Homes starts are at a 40 year low. This is due to the unavailability of new construction loans. Yum sees this as a problem the at could lead to a housing shortage as the inventory of resale home reduces.
- The Economy and Real estate
- Job creation is very slow ( No recovery in Atlanta yet)
- Volatile stock market. It has recovered since 2008 but still up and down
- No home equity improvement with prices remaining depressed. Home equity dollars is typically what fuels small business starts thus creating jobs, growing the middle class and improving the overall economy
- Distressed sales to remain high for at least two years. Delinquent mortgages are declining but remain high
- There are broad pressures of rising inflation continuing to escalate
- “Smart Money “is chasing the real estate market. Smart money is investment money, all cash, that account for 35% of the market sales. And consists of the following –
- investors taking advantage of the weak dollar
- Investors hedging investments against rising inflation
- Investors hedging against a future housing shortage
- Empty nesters paying cash for their children’s homes are then leasing or selling them back to them at a better than market rate of return.
- Rents are rising – this should act as a trigger to improved home sales as rates remain historically low.
- Interest tax credit – this credit remaining in place is critical to the health of the US real estate market. Let your congressman know.
Dr. Lawrence Yun’s speech and slides can be viewed on the National Association of Realtors or on Facebook/narreasearchgroup. Ann can be reached via email: ann@atlantafinehomes.com or (678)457-0717