opinion, prices, USA

Foreign demand keeps prices from falling too far

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Jesse pointed out this article bloomberg: Asian Buyers Buoy New Home Demand in California’s Orange County.  It turns out we’re not the only place that get’s the hype about suitcases of cash:

“You know why Orange County is doing better?” said Wang, a native of Taiwan who splits her time between Shenzhen in southern China, where she oversees a toy-manufacturing business, and Irvine, California, where she raised her three children. “It’s because all my neighbors are from China and Taiwan, and they all bought their homes in cash.”

And you know what ‘doing better’ means?  It means house prices dropping by ‘only’ 39%.

Demand has kept property values from declining as much in Orange County as in other regions. The median home price was $392,000 in January, down 39 percent from the June 2007 peak. That’s less than the 49 percent decline across Southern California and the 51 percent slump nationwide, DataQuick said.

Pretty good news eh?

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Bullocks
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Can anybody illuminate me as to how a weathly Chinese individual from the PRC manages to move the amount of money they would need out of China so that they could afford to pay cash for an expensive home in a place like Vancouver. Doesn’t the Chinese government have a limit on how much Yuan an individual can convert into foreign currency in a year? I thought China was trying to control capital flight?

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5 years 5 months ago
Inventory
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@Bullocks.

Open a firm, hire 50 workers or relatives, borrow $2.5m, use their names to send $50k each (limit is $50k per person) = $2.5m

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5 years 5 months ago
logic
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Where there is a will, there is a way.

Oh, sorry, I meant “where there is filthy amounts of cash, there is a way.”

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5 years 5 months ago
Devore
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@Bullocks: Money taken out of country for investment is treated differently than just sending a bunch of cash to a Western Union in Vancouver. At least that is my understanding.

Regardless, illegal things are done all the time in China and Canada and all over the world, so it should not be surprising there are ways around whatever rules (which are only for the little people) are put in place.

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5 years 5 months ago
vanpire
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@Bullocks:
I would suggest you start by looking up “corruption ” and ” bribery”.
Sheesh, we are so gullible here in Canada. No wonder EVERYONE is taking advantage of our awesome, world-wide famous social welfare system…

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5 years 5 months ago
registered
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Specific Case Shiller numbers for Orange County and “Asian-focused communities” are hard to find. Those that do cover the region paint a different picture: http://globaldecision.com/blog/real-estate-analytics/los-angeles-orange-county-laoc-caseshiller-nov-2011-update/ With the impact of Obama’s weak stimulus drawing to a close the trend is back to a downward slope. The article derives evidence from bizarre stretches, such as ‘good news’ based on 31 new housing starts (without reference to historical median or peak numbers, only the lows) … “Orange County is a rare region where new-home purchases are increasing. Sales of newly constructed homes rose to 80 properties in January, up 63 percent from a post-peak low in February 2009….” … and drivel about wok kitchens and feng shui that doesn’t read much different than breathless releases from the usual local suspects. More importantly, it’s irrelevant. The only way foreign nationals can sustain a local… Read more »
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5 years 5 months ago
specialfx3000
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” It means house prices dropping by ‘only’ 39%.”

I’m ok with a 39% drop here in Raincouver. Bring it on already.

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5 years 5 months ago
jesse
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As chip pointed out earlier, the bloomberg article is rather lacking in hard data; I would have expected a bit more from them to be honest.

It is true that many parts of regional metros have fared better than others. The aggregate price movements show the net pain. If Vancouver were to follow suit that would imply that most cities in the GVRD are in for significant stress.

If China slows down (I know, blasphemy) these other regions purportedly buttressed by foreign capital are in for a world of hurt.

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5 years 5 months ago
VMD
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[Real estate rules don’t discriminate against foreigners]
Mar 19, 2012

Lol @ #1 rated comment: “Wow if we adopted China’s rules in Canada, China would be the first to complain!”

http://www.cbc.ca/news/business/story/2012/03/17/f-real-estate-foreign-ownership.html

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5 years 5 months ago
southseacompany
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Kuke Brocki tackles the supply side of the issue;

“Keeping Up with Demand; Or, tackling the seemingly simple question of housing supply. My aspiring owner’s inquest continues.” By Luke Brocki, Mar19/12, TheTyee.ca

http://thetyee.ca/News/2012/03/19/Vancouver-Housing-Demand/

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5 years 5 months ago
southseacompany
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Oops. Thats’ ‘Luke’ Brocki. Apologies

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5 years 5 months ago
patriotz
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@VMD:
“Canada’s open-door policy is comparable to the approach to foreign property ownership in other countries, including the U.S., Germany, France and the U.K.”

But one of these countries hasn’t had a bubble. Why?

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5 years 5 months ago
patsan
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If you are referring to Germany, the answer is simple:
In Germany “Capital gains tax is charged at normal income tax rates on property sold within ten years of purchase.”

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5 years 5 months ago
patsan
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And something about mortgages in Germany
You can borrow up to 70% from German banks and building societies and they would normally expect a proven track record of regular monthly savings of up to six years before it is approved. The maximum term would be up to 30 years on a fixed rate of interest.

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5 years 5 months ago
WS
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This is complete and utter bulls#!t. I live in Orange County – it is just a wealthier community that is able to absorb the shock of correction for a longer period than stretched areas in poorer regions. It merely takes longer to correct in the wealthier areas as people have the resources handle being more underwater. They will continue to pay and use other resource to delay foreclosure (attorneys, negotiations, bankruptcy etc). Or they will just squat and not pay for 3 years as the banks arn’t processing upper level foreclosures. If you look at what is going on in California the lower income areas corrected harder and faster and now are near at bottom with a 50-65% correction. The wealthier areas have “only” corrected 25-40%. However the year over year numbers show the wealthier areas median prices continuing to… Read more »
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5 years 5 months ago
Anonymous
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@patriotz: “But one of these countries hasn’t had a bubble. Why?”

Because nobody wants to live in Germany. Isn’t that obvious?

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Anonymous
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@WS: “The wealthier areas have “only” corrected 25-40%.”

Unless your Brittany Spears. Her asking price is 57% lower than she paid in 2007. Who knows what the sale price will be.

http://www.dailymail.co.uk/tvshowbiz/article-2111940/Britney-Spears-puts-Los-Angeles-villa-sale–4million-paid-it.html

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Anonymous
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@WS: But in Vancouver in 2008, it was one of the wealthiest areas (Van West) that was hardest hit. It is different here you know.

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5 years 5 months ago
Anonymous
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@Bullocks: Can anybody illuminate me as to how a weathly Chinese individual from the PRC manages to move the amount of money they would need out of China so that they could afford to pay cash for an expensive home in a place like Vancouver? A common technique is to not bring the cash into China in the first place. If you are in the “export” business your customers can pay you in the US, Hong Kong or China. Some percent never makes it back to China and is available for the owner when they arrive offshore. There are lots of stories of “Village Chiefs” travelling to Macau with a briefcase full of RMB, gambling (and often loosing) and leaving with a smaller suitcase of HK Dollars (which is currently pegged to the US dollar). They don’t always go back… Read more »
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5 years 5 months ago
jesse
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@WS: “It merely takes longer to correct in the wealthier areas as people have the resources handle being more underwate”

Good comment, I think part of it can be explained by looking at relative unemployment rates by income level. Those with less education have been hit the hardest, those with post-secondary degrees are near full employment. That the housing bubble hasn’t been as traumatic in more affluent areas is more indication of the favourable job situation and cheap money.

Vancouver as a region is not comparable to select parts of the OC. Of things that should not be compared, these are up there with buggy whips being compared to industrial YAG lasers.

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WS
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This is what is going on in the wealthier communities down here. Now please tell me were this ends up when all said and done.

“The U.S. foreclosure crisis, Beverly Hills-style”

http://www.reuters.com/article/2012/02/16/us-usa-housing-hills-idUSTRE81F0B520120216

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WS
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One of my key takeaways from that article is this:

“A huge “shadow inventory” is building of elite homes that are in default but have not been put on the market. Of the 180 distressed properties in Beverly Hills, only 12 are up for sale.”

The supply side pressure is going to drag out for years if not decades…

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5 years 5 months ago
patriotz
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@WS:
That is a market segment where non-recourse (e.g. in California) makes a difference. Wealthy owners who are underwater can just give the house back to the bank. That’s bad for the credit rating but presumably they don’t need credit anyway. Thus the strategic default.

Recourse vs. non-recourse doesn’t make much difference to owners who can’t pay the mortgage or have no other assets, a group which makes up the great majority of those defaulting across the US.

I suppose the equivalent in Vancouver would be the owner hiding assets offshore and declaring BK (which is illegal) or simply leaving. But I don’t think that’s going to be any more relevant to the metro market than Beverly Hills is to LA.

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Anonymouse
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@patriotz:

“But one of these countries hasn’t had a bubble. Why?”

I believe houses in Hamburg, Munich, and Berlin are up over 10% year-on-year.

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BoogyBear
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Macau, what a place. It is far better to lose half your RMB money than travel back to China where a government official can take it all. Of course if you win – the better.

The same with housing better to lose half your money in a downturn, but still have the property than lose all your wealth in China. Besides you can buy the home with cash and later get a CMHC insured mortgage at 90%. Safer than gambling in Macau. And our government isn’t going to stop it – the government makes big money from real estate.

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