This Weeks Economic Update

Dated: September 21 2017

Views: 309


Foreign investments in U.S. real estate have surged nearly 50 percent as of late, according to the 2017 Profile of International Activity in U.S. Residential Real Estate from the National Association of REALTORS® (NAR).  The report shows that between April 2016 and March 2017, foreign buyers and recent immigrants purchased over $150 billion in residential property—$153 billion, to be exact. Marking a new survey high, this boost is a 49 percent increase from last year’s $102.6 billion rank.   “In the face of global economic and political uncertainty—that is, Venezuela upheaval, Brexit, Syrian refugees, Russia meddling, and even the very nasty U.S. Presidential election campaigning—people with money were searching for something very safe,” says Lawrence Yun, NAR chief economist and senior vice president of Research. “As a consequence, both the demand for U.S. Treasury bonds and U.S. real estate rose.”

While the report shows an influx of buyers from the top five countries, an increase in sales dollar volume from Canadian buyers seems to be the largest driving factor behind the boom. Canadian transactions increased from last year’s $8.9 billion to a whopping $19 billion, a new high for Canada.
But Canadians are far from the only foreign buyers currently slaying the U.S. real estate game. Despite the rising Canadian numbers, China still reigns as the top country for sales dollar volume for the fourth consecutive year. “Canadians bought vacation homes in warm weather states, driven largely by the huge housing wealth accumulation in Canadian markets like Toronto and Vancouver,” says Yun. “Chinese bought partly because its economy continued to grow at 6 percent or better. Such a growth rate, though light by recent Chinese standards, is enough to crank out a new billionaire every week. Then consider how many millionaires are being created in China.”
While the three states with the highest foreign activity are Florida, California and Texas, other cities are seeing a rise in foreign traffic, too.  In Seattle, Chinese buyers are flocking to the real estate market, drawn by the burgeoning tech scene. “Seattle is one of the hottest markets in the country right now due to new job creation in the tech industry,” says Mark Kitabayashi, managing broker with TeamMark Windermere Real Estate. “That given, our prices are still reasonable when compared to a lot of the larger cities.” Prices in the heart of the city land around $800,000, but out in the suburbs, you can still score a property for closer to $300,000 – $350,000—a reasonable investment for both foreign and domestic buyers. In fact, the median price in Seattle’s suburbs is comparable to the median price paid by foreign investors throughout the country, which came in at $302,290—an increase of 9 percent from last year’s $277,380.
Another reason foreign investors are flocking to Seattle? The market’s relationship with neighboring Vancouver, B.C. “When B.C. added an additional 10 percent tax, that flocked a crowd here,” says Kitabayashi. Politics factor in, too. “When Trump became president, foreign investors started heading back to B.C. Now it’s evening out,” notes Kitabayashi.
Taxes may also bring certain foreign buyers to the U.S. “We see that with the Japanese buyers,” says Kitabayashi. “There are certain tax advantages between Japan and the U.S. that might be dissolving in a few years, so we’re seeing Japanese buyers surging before that advantage goes away.”
When looking to the future of foreign investments, Christine Hansen of CENTURY 21 Hansen in Fort Lauderdale, Fla. addresses the EB-5 legislation, which is currently up for renewal on September 30. The program, which rewards foreign investors with permanent U.S. residency, is currently offered to buyers who spend $500,000 or more. “There has been talk of raising this amount to $1.35 million,” says Hansen. “This would be very detrimental to the program’s future viability, and would jeopardize the continued draw of direct foreign investment into the U.S.” To put this in perspective, only 10 percent of foreign buyers paid more than $1 million on a property in the past year. “While the EB-5 program isn’t perfect, reform should be achieved through a legislative process with careful consideration,” stresses Hansen.
“America offers equal private property rights protection to U.S. residents and foreigners,”says Yun. “That’s the big attraction as to why foreigners buy in the U.S. But the drawback is that foreign buyers could be gobbling up properties at the expense of U.S. homebuyers, particularly young, first-time homebuyers. To ensure there’s enough, the policy focus should be about constructing more homes in the U.S., rather than trying to limit foreign buyers.”


Small cities once booming as industrial hubs have the opportunity to prosper again, according to recently released research from the Lincoln Institute of Land Policy.  A report by the organization, “Revitalizing America’s Smaller Legacy Cities: Strategies for Post-Industrial Success From Gary to Lowell” (Gary, Ind., and Lowell, Mass., two former manufacturing cities) presents three key steps for revival: leveraging the city’s distinct characteristics to improve quality of life; strengthening its downtown area; and supporting its labor market through pro-workforce policies and programs. The report was published in conjunction with the Greater Ohio Policy Center. “The challenges faced by smaller legacy cities loom large in the American imagination,” write authors Torey Hollingsworth and Alison Goebel, of the Greater Ohio Policy Center. “It’s no coincidence that Billy Joel and Bruce Springsteen chose Allentown, Pa., and Youngstown, Ohio, respectively, as symbols of the demise of a certain kind of American Dream.”  
Establishing roots in smaller cities is fading from the American Dream
 in part due to a lack of funding and infrastructure that underpins thriving cities. Several smaller cities are hampered by housing and income disparities, as well as plagued by blight, and walk the line between embracing newcomers and longstanding residents.  The report compares 24 such “legacy” cities in the Northeast and Midwest, gauging indicators, including employment and population, observed from 2000 to 2015. The research revealed successful strategies to date, including:
Attract Talent
 – Hamilton, Ohio and South Bend, Ind., have attracted talent through fellowship programs designed to bring younger workers into the fold. Hamilton, also, has hired a city manager to redefine the culture at City Hall.
Encourage a ‘Sense of Place’
 – Bethlehem, Pa., has encouraged its own “sense of place”—and promoted its historical uniqueness in the process—by establishing an arts and culture campus in a shuttered steel plant.
Look to Downtown
 – Syracuse, N.Y., and York, Pa., have each looked to downtown as the heart of resurgence, with Syracuse rebuilding its downtown and York reimagining its downtown as a Business and retail district. “No two places are alike, but smaller legacy cities can learn from each other as they reposition themselves, whether as a regional service center, a competitor on the national or global stage or a tourism hub,” authors Hollingsworth and Goebel write. “They will need to build teams from the public and private sectors who share a spirit of collaboration and the will to lead their communities through a period of great transformation.”
Source: Lincoln Institute of Land Policy

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David Sarnowski

David is a seasoned real estate professional, specializing in residential sales, rentals and investment properties. David is an 18 year resident of the New Jersey Gold Coast, with the local knowledge ....

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