As if it wasn’t hard enough for home buyers with high prices, all cash offers and tighter lending standards, now buyers have to compete with cash-rich overseas shoppers from China scooping up real estate in the U.S.
Record numbers of Chinese are traveling abroad, an estimated 100 million in 2014, roughly the population of Mexico are traveling the world, visiting strange new lands and, in some cases, trying to buy them. Educated and flush with cash from a lifetime of frugal living and studious saving, Chinese visitors are reaping the benefits of living in the world’s fastest growing economy and they’d like to buy into the kind of good life that might attract the wrong kind of attention back home.
The motivation to leave is perfectly understandable. Corruption crackdowns have made many in the economic elite suddenly disappear, their assets confiscated by aggressive government regulators. The air in Beijing is thick enough to cut with scissors and asthma is running at epidemic levels. Wealthy Chinese have the money and yearn for a better life for their kids, so they’re going out and buying it. That largess includes paying cash for homes that cost millions of dollars. It’s a seller’s market and the buyers winning the race in many California neighborhoods speak Mandarin.
According to Bloomberg, Chinese buyers paid a median price of $522,148 versus the $199,575 median price tag for homes. Compare that to Canadians who buy homes in the U.S. paying a median price of $212,500 per residence. The Chinese are here and they’re spending big. In California 32 percent of foreign homebuyers are Chinese.
Deja Vu All Over Again
This isn’t the first time wealthy foreigners tried to buy into the U.S. real estate market. Those of you a little older might remember when the Japanese, flush with cash from the trade deficit with the U.S., started buying U.S. property in the 1980s. By 1990 the trend had pretty much run its course when the Japanese economy flattened out and foreign buyers started realizing that the U.S. real estate market can be brutal.
It will be different for Chinese buyers because there’s little incentive to return home. Even our brutal U.S. housing market is still a game of patty cake compared to dealing with the Chinese government. We also tend to forget the scale of the Chinese population. While millionaires may represent only a small percentage of the population, that’s still millions of people with the cash to drive home values out of reach for the average American. This won’t be a repeat of the Japanese invasion of the 1980s. The Chinese are here to stay and with their work ethic, focus on savings, the value they place on education and talent for investing; these invaders aren’t going to get tired and go home. On the contrary, they’re going to thrive here, driving up the cost of living for all of us. Their kids are going to bump your kids out of seats in elite colleges and they won’t bat an eye at paying higher tuition.
There’s no finger pointing this time, we have no one to blame but ourselves. We stood by and watched U.S. companies ship our manufacturing jobs to China to feed our addiction to cheap consumer goods and now it’s going to come back to bite us. The new invaders aren’t coming ashore on landing craft or parachuting in from transport planes: they’re flying in the first class cabin sipping champagne and we’re holding the door for them. The current beach head is in California but it won’t be long before the invaders sweep eastward, gobbling up prime real estate, pushing home prices higher and driving up the cost of living for all of us.
What China could never hope to accomplish militarily in their wildest dreams will be as easy as writing a check. We will not only welcome these new invaders, we’ll thank them and ask if we can get them something to drink while they’re waiting. For them it’s a bargain. Chinese buyers can sell a tiny apartment in Beijing and trade it for a $900,000 house here. Some Chinese parents are buying U.S. homes for their kids in high school.
Let’s be clear; they’re not coming here to create jobs, unless you count gardeners and maids, they can do that in China. They’re coming here because we have tilted American society toward the wealthy. The kind of corruption that would get them hung back home, will get them red carpet treatment here in the USA. Money in politics has turned America into a tax haven for the rich and the Chinese will know exactly how to leverage that environment.
If you’re not frightened of this new trend right now, you will be in a few years. Make no mistake; this is an invasion and we’re not only welcoming the invaders, we’re offering to pave the roads for them. This is one trend that is not going to end well.