Impact of foreign buyers on US housing market

NEW -> Contingent Buyer Assistance Program
<p>For Foreigners it can very well be a hedge bet. To wit, let's suppose a Canadien is thinking the dollar will gain in the near future. If they buy today at $500K, or C$550K (suppose a C$1.10 fx rate), and the house falls to $400K in 1 year. In that same span, the $ goes to C$1.35. That still amounts to a C$540K investment for the Canadien, a minimal loss. Now, in a Vegas market where he feels it is approaching bottom, suppose he pays $200K for a house at C$1.10 (C$220K investment). He rents it out for $1000/mo. His gross ROI at this point is 6%. The market goes down a bit more to $180K, but $ goes up to C$1.35. His investment, despite nominal loss in $ value, goes up to C$243K, and his income is now at C$1350, and his gross ROI goes up to 7.4% + C$23K, or 18.5%.</p>

<p>So if he is betting the $ will appreciate more than the depreciation of a particular regional market, he is being risk averse. Of course, if he would have invested the same C$220K in a 6% US bond, he would have a 42.5% gain... My personal feeling is that housing will continue to decline in Vegas throughout next year, and possibly reach a bottom at the end of 2008. They have already pulled back in excess of 20-25% from their peak, and I can see another 10-15%. As for the $, I don't see us begin to recover until second half of next year, which would put the end of next year as a good time for them Canadiens to invade us.</p>
 
<p>mino - do you mean it is bad for our dollar to add mass amounts of currency into our current supply on a dialy basis ;) </p>

<p>Yes, this will definatly help when B52 feels that housing has stabilized and stops flooding the market with G-Stacks. </p>
 
foreigners who have excess money do not buy depreciating assets, and our housing market is still rapidly depreciating.





let's face it, you're not talking about middle class foreigners here; you're talking about people who have access to lots of cash, right? (before you say no, think about how many middle class american friends of your have bought properties outside of USA)





people who have lots of cash have more investment choices than the typical middle class saver. they don't have to buy US real estate as hedge investment (they have private bankers who advise them on currency hedges). sad but true, sorry...
 
<p><em>foreigners who have excess money do not buy depreciating assets</em></p>

<p>How do you know this? Are you a foreigner with excess money?</p>
 
<em>"How do you know this? Are you a foreigner with excess money?"</em>





Actually, foreigners often do buy rapidly depreciating assets. Foreigners are often made the bagholders for a decline in asset prices.




<a href="javascript:void(0);/*1198818009121*/">The Dumb Money</a>
 
turbo, if i was one and i said yes, it still wouldn't necessarily make me right, would it, ?





i said the above because --> when the US$ was appreciating against the EUR from 1.16 to 0.85 between 1/1999 and 6/2001, did we hear of US investors snapping up european real estate because of "the strong dollar"? we similarly did not buy up tokyo real estate from 3/1995 to 3/1997, even when prices fell by over 10% and the dollar appreciated over 50% vs the yen.





anyway, for foreign money to arrive here in meaningful volume, 3 conditions have to be met:


1- the foreigners are flushed with cash from a prolonged economic boom (ex: china, australia, england) or from sale of natural resources (ex: petroleum for the middle eastern countries, metals for chile).


2- there is a perception in the foreign country that investment choices locally are over-valued. this is an important point, as this is half the reason americans did not buy european and japanese real estate during the periods i mentioned.


3- the US market is appreciating, not depreciating. people who have enough excess cash to buy real estate overseas didn't get to that point by buying duds, ya know.





the article mentioned canada, but it simply does not fit into #1 and #2. #3 is definitely untrue as well, regardless of where the foreigner is from. so what if my european cousin's fiancee's boss's partner's wife's brother bought some american real estate? there just isn't enough volume.
 
as IR said, foreigners with excess money often make dumb decisions. japanese money bought a ton of overpriced RE in the 80s. there was a flood of foreign capital gobbling up commercial re assets the past several yrs, especially from australia and the middle-east. they have watched the value of those assets drop nearly 25% within the yr. the chinese really know how to invest in american assets. off the top of my head, over the yrs they've bought brands like reebok, ibm (the consumer PC div, not the consulting side), pier 1 imports, westinghouse (the consumer electronics div, not industrial ). man, those companies are like disco!





as we speak, foreign money is pouring into american and european financial institutions from china, singapore, and dubai. anyone here interested in buying bear stearns or blackstone stock right now?





but at the end of the day, what happens to the american economy will largely be determined by what goes on within the american economy. same goes for irvine real estate values. even in a town as diverse as this, there is no tidal wave of foreign cash that can make up for rising unemployment, record foreclosures, excess inventory, exploding mortgage pymts, and the list goes on and on...
 
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