I Would Not Be Buying U.S. Real Estate
Developer & Investor · São Paulo, SP · Member since 2014 · 5 posts · 2 votes
I Would Not Be Buying U.S. Real Estate
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Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
11yI would not follow blanket advice about do not buy US real estate. There may be individual markets that are over priced and in danger of deflating rapidly, but there are many more markets that are pretty strong. I would look heavily to your local market. I think cheap energy prices and low interest rates will continue to push prices up a little, but areas where I live that depend on the high price of oil to generate jobs are much riskier. Real estate is local.
49 Replies
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes11y
Originally posted by @James Park:
@matt r
I guess I see the real estate market no different from company stocks. The way I see it, if it area is cheaper to rent than to own, the real estate is over valued. If the real estate is cheaper to own than to rent, then it is under valued. Median income and median home prices are just one metrics I use for valuation. If the spread is less than a three, the quality of life is good as homes are still easily affordable and sustainable. In the bay area instance, the average median income household cannot afford to buy a home. The housing market in the bay area will be negatively impacted if either of these two things happen: nasdaq crashes or China goes into recession.
the time to buy gold was when it was trading between 280-500 not when it is trading between 1700-1920.
Originally posted by @Matt R.:
@James Park I know very little about Rogers. How does one couple median income with places like Cupertino or Beverly Hills? Where does that relationship begin or exist in these very expensive areas? Obviously, no one making median income can buy there already and average folks have not been close to buying there for a long time. I can understand median income folks buying in median income areas. Just trying to understand how this applies in reality, especially considering 1/3 of global gdp is tech and perhaps 1/3 of that is in Silicon Valley/Bay area.
Would not supply and demand be a superior metric? Considering these buyers don't really care what it rents for...they have no interest in renting these personal homes out....
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes11y
@Matt R
Yes, you are absolutely correct, supply and demand is the ultimate metric in real estate. The average W2 American household cannot afford a home in the nicer areas of LA and the bay area. These areas have been the meccas for oversea Asian cash buyers. We are in a global economy. If China goes into recession also bringing down the U.S. economy into a recessionary spiral, immigration and foreign investment from China (demand) will also slow down.
Originally posted by @Matt R.:
Originally posted by @James Park:
@matt r
I guess I see the real estate market no different from company stocks. The way I see it, if it area is cheaper to rent than to own, the real estate is over valued. If the real estate is cheaper to own than to rent, then it is under valued. Median income and median home prices are just one metrics I use for valuation. If the spread is less than a three, the quality of life is good as homes are still easily affordable and sustainable. In the bay area instance, the average median income household cannot afford to buy a home. The housing market in the bay area will be negatively impacted if either of these two things happen: nasdaq crashes or China goes into recession.
the time to buy gold was when it was trading between 280-500 not when it is trading between 1700-1920.
Originally posted by @Matt R.:@James Park I know very little about Rogers. How does one couple median income with places like Cupertino or Beverly Hills? Where does that relationship begin or exist in these very expensive areas? Obviously, no one making median income can buy there already and average folks have not been close to buying there for a long time. I can understand median income folks buying in median income areas. Just trying to understand how this applies in reality, especially considering 1/3 of global gdp is tech and perhaps 1/3 of that is in Silicon Valley/Bay area.
Would not supply and demand be a superior metric? Considering these buyers don't really care what it rents for...they have no interest in renting these personal homes out....
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes11y
@Radhika M
Firstly, I am sure that you know the Cupertino housing market much better than I would since you are an insider and I am just an outsider analyzing data and numbers from what I see from the census data. Though, I have not researched and studied the Cupertino's housing market's history, I have however studied Irvine's housing market from the 1980 to where it is today. During the 1995-1997, there was about a 30 month period where the median home price and the median housing income ratio was right around 3.14, where Johns Creek housing market is today. Irvine's real estate market cycle was about 10 years behind that of Cupertino. This is one of the reasons, why I have been very curious into researching the Asian buyer influence and its impact to real estate price and appreciation. Irvine's housing market only corrected 15-20% during the last down turn while the surrounding B or C neighborhoods like La Habra and Santa Ana corrected 40%. Here in the Northern Atlanta suburbs, it is similar. Gwinnett County corrected 50% in the last down turn while Forsyth County corrected only 30% and Johns Creek only corrected 20%.
I am sure that Cupertino real estate has always been more expensive than other parts of the country like the Midwest and the South. When housing costs are so high, it is very difficult to build wealth in that type of environment if you are an independent without getting any out patient care from wealthy parents. Again, this is just my theory, I do believe that the Asian demographics have really inflated the prices to extreme bubble levels vs income in the Cupertino housing market. Cupertino's population is right around 60k where 64% of Cupertino's population is made up of Asian households. Imagine if all the Asian families decided to move out of Cupertino at once, home prices would instantly drop 40-50%.Iand bay area real estate has been expensive even in the 1990' and 2000's. We really wanted to buy a property in the area in 2000 and again between 2005 and 2006 but did not buy because we thought the property then was expensive. we bought in early 2013 for almost double the price of what it was in 2005/2006. Even during the the market crash in 2009/2010 the market went down between 10 to 20% and it was one of the first markets to recover. The couple who sold our property tried selling the house for X amount in 2010 since they bought a bigger place but they did not get the price they wanted so then rented it and then sold in 2013 for X + 300K more. again I am not questioning your logic or reasoning. I am just interested to see if we are really so out of the place in terms of affordabilty compared to before.
- Investor · San Jose, CA · Member since 2014 · 167 posts · 146 votes11y
@James Park Thanks for taking the time to answer in detail. Yes if 64% of a city's population left the price would fall. But this would be the case for any city. if 50% of population fell the property price would fall even in John Creek where you are investing.
But I do agree with your premise that Asian population might have accelerated the real estate price here. One thing I see also is that the Asians usually do not like selling properties and like to hold them for generations. This is how it is in India also where I am from and that is one reason for the housing supply shortages and increase in price.
Also wanted to say that I really do enjoy yours posts and learn something from them.
- Investor · San Jose, CA · Member since 2014 · 167 posts · 146 votes11y
@James Park Also wanted to add one point about it being difficult to build wealth when housing costs are high. I agree with you that it can be difficult to do it but can me done. I have seen many people who have done it. It is harder but if you are smart, work hard and save you can do it.
- Hong Kong, Hong Kong · Member since 2015 · 140 posts · 89 votes11y
Yes, it is not only Chinese money flowing into the US real estate but also money from several others parts in Asia. For example, Singaporeans are very keen on US real estate as well but also others. We talk to fund managers, hedge funds and bankers here in Asia every week and they are all very interested in investing in the US. The reason is simple: Asian economies have been quite unstable over the last few years and the currency issues is another factor driving them towards more stable markets.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes11y
I am on pace next year to close out hundreds of millions in commercial real estate transactions.
There are plenty of great deals out there. People that mainly deal in different asset classes, foreign country investors , and those talking macro views really do not know what is going on. They tend to be on the outside looking in. There are foreign investors who will pay stupid money just to get funds over here as they are not confident in their local government for economic and civil unrest. You see this a lot in gateway urban core cities.
If you did something day in and day out almost every minute, hour, second you would view things in reality instead of speculation. These kinds of macro views can't be taken as the gospel and an absolute on what to do.
You have macro and micro data for markets. You also have real estate cycles that go about 10 years low to high and different asset classes cycling at different points in time. There is opportunity at all times. There might be more or less of it at any given time but there are deals to be had. The cycle can be recovering, peaked, bottomed out and there are still properties that are overpriced crap available for purchase.
I am not a believer in the sky is falling mentality. There are a lot of properties I currently would not buy as some sellers are being aggressive with caps to see who will overpay. I look for highly motivated sellers not trying to extract every last basis point out of a deal by multiple rounds of bidding etc. We go in with a fair price and if they do not take it we move on.
- San Francisco, CA · Member since 2015 · 786 posts · 717 votes11y
I like to listen to Jim Rogers on Stansberry Radio because they have a contrarian view of things. They also sell stock advisory newsletter subscriptions and one of the purposes of the podcast is to get people to sign up for their newsletter. I would take all the doomsday predictions with a grain of salt. Their copy on "End of America" was really good and thousand of people signed up for their newsletters.
The problem with being a doomsdayer is that you miss the best opportunities to buy "when their is blood in the street" (Rothchilds) or "being greedy when others are fearful" (Buffett). The key to successful investing is always managing your emotions.
Porter Stansberry and his side kick buy one US real estate property every year as a hedge against hyper inflation.
The stock market is overdue for a major correction either this October, next year or any of the two years after that. If the Nasdaq crashes, that affects real estate prices in my area of Seattle. How the stock market affects your local real estate market depends on what sectors crash. Usually, all the sectors crash when their is a housing bubble crash and this tends to happen every 18 years. The supply/demand of the housing market don't point to a major housing bubble crash for at least another decade. We're more likely to see a correction in different sectors.
Pay attention to Jim Rogers but be prepared to take advantage of market collapses rather than being paralyzed by fear. For some, 2008 was a way to lose all their real estate. For others, 2008 was a gold mine to build a fortune.
- Investor · Milford, CT · Member since 2015 · 200 posts · 69 votes10y
Jim Rogers does nothing but predict crashes.
- Investor · Temple City, CA · Member since 2015 · 2 posts · 0 votes10y
I am in the logistics business mainly Air Cargo from China / Hong Kong to the USA. Most of our shipments are to US retailers on Amazon, Ebay and websites. I have already seen business this year for us drop by 25% for exports out of China / Hong Kong. The news you hear about the China economy being extremely bad is true. Everyone hoping that Chinese capital will push real estate higher is dreaming. There are large sky rises in Chinese cities that are ghost towns. China real estate is priced so high pushing the majority of the investment toward the stock market in China. This caused the bubble in the china stock market that just burst. When the general population starts investing in real estate, stocks, commodities bubbles are forming and ready to burst. Majority of the capital from China investors are locked or loss in the market and you have already started seeing Chinese investors back away from large high priced homes. Take a look at these cities Arcadia, Temple City, Alhambra, Monterey Park, San Gabriel in Southern California. Those cities have the highest concentrated Chinese population in the USA and you can see the prices in real estate have flattened and in million dollar homes prices are dropping fast. A correction in the market be it real estate or wall street is coming and the interest rates rise is the gun thats going to blow this bubble.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Roger Chen I was just over in Singapore and we did a tour of Malaysia right over the causeway ... we looked at multiple developments of massive scale ... condo's retail etc. with no buyers.. and all being build by Chinese investors. and that's just in Malaysia... I concur on the unprecedented build up of units with no buyers..
The Chinese effect is more localized than one that would cause a US melt down in RE.
And when the prices get fairly good in the better markets the Chinese investor will scoop them up of that I have no doubt
- Investor · Temple City, CA · Member since 2015 · 2 posts · 0 votes10y
Originally posted by @Jay Hinrichs:
@Roger Chen I was just over in Singapore and we did a tour of Malaysia right over the causeway ... we looked at multiple developments of massive scale ... condo's retail etc. with no buyers.. and all being build by Chinese investors. and that's just in Malaysia... I concur on the unprecedented build up of units with no buyers..
The Chinese effect is more localized than one that would cause a US melt down in RE.
And when the prices get fairly good in the better markets the Chinese investor will scoop them up of that I have no doubt
Chinese real estate developers and businesses are always worried about the Chinese governments instability. China has a long history of corruption so when Chinese people like my self talk about diversifying in the market, it really means moving capital out of China. In the US we diversify my real estate, bonds , stocks , commodities etc. In China diversifying is 65% Chinese assets and 35% other world assets. I figure large Chinese real estate developers rather have empty multiple developments out of China then risk no diversification in China. China is one of the only countries in the world that has more political changes then half the world combined, i think we have had some 25 different dynasties before the Nationalist Party and now the Communist Party.
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Roger Chen you would know better than I... I sure would like to be the Sub contractor suppling the cemet though... Not sure if they get burned like happens here in the US but if they are getting paid they are getting RICH
- Rental Property Investor · San Francisco, CA · Member since 2015 · 49 posts · 20 votes10y
This thread caught my eye because I have been asking myself this very question. The federal reserve is expected to raise interest rates by the end of the year. An iterest rate increase, combined with a Tech Bust, and fewer Chinese, Russian, and Latin American investors, may soften the US housing market. I personally am waiting until spring of 2016 to invest in the SF Bay Area (where I live), because I am anticipating a market correction.
- Investor · Saint Johns, FL · Member since 2015 · 141 posts · 100 votes10y
No doubt that the market is softer in most areas. The Bay Area is one exception I think where the 'Valley Boom' is alive. One of my friends who is an engineer at Apple told me he was going to clear $400k this year (he is not a senior manage, not even middle...). How can ordinary workers live in Cupertino, Santa Clara, Sunnyvale, etc??? Rents are ridiculously high and buying is crazy...
No one had a crystal ball and no one can predict the market. To me, the RE market is similar to the stock market: crowd behavior. Stock prices most often have nothing to do with the company's performance (for the most part), but have everything to do with the perceptions of the investors and where they think the company will be in a year or two.
I too, think that a correction is coming..
I wonder if anyone out there has started to sell their RE assets and just sit on cash, waiting for lower prices?
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Jan H. I grew up in Cupertino in the early 60's houses were 15 to 25k..
when they hit 100k everyone thought there is no way they could go higher.
and so on and so forth for the last 50 years... I think there are probably less than 20 micro markets like a Cupertino in the US were all logic goes out the window.. Who was to know that Apple would make this incredible turn around it has in the last 20 years and that the company would headquarter on Stevens Creek and Hwy 9 ( well I am dating my self Hwy 9 is actually I think De Anza blvd now LOL)
I think you can have plateu's but a crash in prices I just don't see it in these areas.. Unless of course apple craters and the jobs go bye bye then all bets are off
- Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes10y
http://www.reuters.com/article/2015/02/11/us-usa-p...
Take that Jim Rogers!!!!!
Waldorf Astoria sale marks tip of Chinese money into U.S. hotels - Hong Kong, Hong Kong · Member since 2015 · 140 posts · 89 votes10y
From a China perspective, I can confirm that the demand for US real estate is significant and is on an upward trend. For example, we organized a seminar in Hong Kong last Friday and had a full room of investors looking to buy US real estate. We are having our hands full with follow up now and the total amount of money that we need to put in the US real estate is more than 100 million USD (and that is just our firm).
Here is another article that is relevant to this post:
Asian investment into US real estate accelerates:
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Sam Van Horebeek the 64k question is what asset class's are they most interested in. ?
and what locations... IE west coast Vancouver SF and LA are or were very popular in Hong kong
any thoughts on this ?
- Hong Kong, Hong Kong · Member since 2015 · 140 posts · 89 votes10y
The asset class that Chinese are interested in depends very much on their purpose of investing. Majority of Mainland Chinese individuals are interested in buying single family houses for the purpose of immigration/living/retirement. If the purpose is for studying in the US, they tend to focus on condo apartments close to colleges. Chinese high net worth families and investors with an interest for pure investment returns are looking at both single family houses, multi family houses, condo apartments and even commercial properties.
Regarding location, it remains true that most of our clients focus on gateway cities (NYC, SF, LA, Boston,...) no matter their purpose of buying (immigration, education or pure investment). However, we are also seeing a significant increase in pure investors (defined as those who are only looking for returns) who are interested in second-tier and third-tier cities. For example, we have seen multiple deals in cities such as Atlanta, Philadelphia, Orlando, Memphis, Austin, ...
- 10yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Sam Van Horebeek When I was at a foreclosure sale in Atlanta I watched a Chinese investor drop about 2.5 million in one afternoon buying SFR's I bought my two and called it a day LOL.
- Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes10y
Talking about China, here is a recent fun story. An omen? ;) Lots of conspiracy theories.
http://qz.com/528450/chinas-floating-city-in-the-s...
On a serious note, an informative video that i came across around 2013 warning about impending bubble in China was by VICE. Here's a link I could find. There was a 15 minute clip that was simply mind boggling. Explained to me what caused all that commodity boom of last 10-15 years. Lots of ghost towns.
- Investor · Bellingham, WA · Member since 2010 · 308 posts · 230 votes10y
One thing to keep in mind (in addition to all the other good points raised) is that large institutional investors who Rogers is doing business with think of a whole country as a single market. Since they are primarily buying trophy assets in gateway cities when they say UK they're really talking about London. When they say Japan they're really talking about Tokyo. When they say US they're talking NYC, maybe Boston, maybe LA and everything else is secondary or tertiary. So when Rogers says don't buy US he probably means NYC is getting too expensive and maybe he's including Boston or LA but mostly NYC.
I also think it's important to come to grips with our innate recency bias where we see a bubble around every corner. Yes prices are rising in a lot of coastal markets but unlike in the mid-2000s loans are still being underwritten and not handed out like candy on Halloween. Yes some is driven by foreign buyers but that's because the US is understood to be the most stable, legally governed large real estate market in the world (Or as Sam Zell said in Chicago last summer we're the cutest girl in the um, 'gentlemen's club').
And yes some of this is driven by artificially low interest rates but consider if you will for a moment this thought: What if the Fed really is trapped holding interest rates at 0% for a lot longer than 'everybody' believes? Right now they're afraid to even raise them a quarter point six years into the recovery. Maybe low cap rates are the 'new normal'. After all the Fed is following the same playbook as the Bank of Japan who've been trapped for twenty five years.
If Chinese investors have been moving their money here because they're concerned about their investments at home up to this point, and now the dollar continues to rise, cap rates remain low or fall further and their economy continues to slow down do you think they'll be more or less likely to continue investing in the US? We were talking about the answer to this question over on another BP thread yesterday:https://www.biggerpockets.com/forums/522/topics/240269-newest-trends-chinese-overseas-real-estate-investing
Good hunting-
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