Last week was a rough one for the world’s second largest economy. The Chinese stock market suffered a nosedive, ending the week down 11.5%. That translates to a loss of nearly $10 trillion. That’s trillion with a capital “T”.
The resulting sell off was felt worldwide. Japan’s Nikkei was down 4.6%, Hong Kong’s index tumbled 5.2%, and Austrailia’s markets were off by 4.1%. American markets weren’t immune either, last Friday alone the S&P dropped 3.2%, the Nasdaq fell 5% and the Dow was off 1,000 points in one week. Yikes.
Aside from being a newsworthy event, how does the falling Chinese stock market and its resulting worldwide downturn affect us here in the U.S.? Well, our markets have continued to show high volatility, regaining much of their loss over a matter of days this week. But what about real estate investors and the average home buyer?
In fact, it’s quite possible that the sudden dip and cool-off of Chinese markets could be good news for “main street” America, especially those looking to buy homes. To say the Chinese are heavily invested in American real estate would be quite the understatement. In 2014 alone, the Chinese invested a massive $10 billion in our real estate.
We’ve talked about this foreign investment phenomenon repeatedly here on LuxuryLAHomes.com. Locally, soaring prices in prestigious neighborhoods like the Hollywood Hills and Beverly HIlls, are being influenced by a heavy influx of foreign buyers.
Other large metropolitan cities are experiencing the same. The Epoch times reports, “Chinese buyers have become the most aggressive foreign investors in New York City, surpassing Russians in volume and mass.”
And in San Francisco, despite all the freshly minted Silicon Valley billionaires and millionaires, local station KCBS reports that it’s largely the Chinese who are driving the market in the Bay Area.
“Chinese buyers have spent more than $600 million on Bay Area real estate in the past two years,” they report.
So tougher times for the Chinese economy and its investors could potentially mean less competition. Less competition could lead to a cooling in large markets, including Los Angeles, which could in turn lead to an increase in inventory, especially in the high-end luxury market.
“There’s still a strong desire to buy in America, but maybe they’re not coming in with quite as strong offers,” said Palo Alto realtor Ken DeLeon. Of course on the agent side, a cooling market isn’t exactly ideal, since “an extended global financial crisis could bring a chill wind to the Bay Area’s red-hot—and still-rising—home prices.”
In New York, the picture is even less clear as differing opinions abound about how Chinese stock woes will hurt or benefit our country’s largest market.
“Interest in luxury tower apartments, as well as larger commercial real estate opportunities, is likely to even increase as China’s millionaires seek safe investments and higher returns in the United States,” The Epoch Times writes. “The Chinese stock market crash may encourage Chinese corporations to seek higher returns in New York.”
On the flipside, Big Apple real estate brokers were already losing confidence in the market last month, even before the Chinese crash.
“Anticipation of an interest rate increase in the future and uncertainty about some aspects of the global economy, particularly the Greek and Chinese economies, were the key concerns cited as impacting their confidence in the market six months from now,” the Real Estate Board of New York reported in a survey.
Clearly opinions abound on how a stumbling global market will affect us here Stateside. So what conclusions can we draw, nationally or locally for home buyers? Well, there is a possible silver lining for mortgage shoppers.
Remember that all-but-certain interest rate hike the Federal Reserve had been prepping us for for over a year? Since there is speculation that a raising of interest rates could further rattle unstable markets, it’s looking increasingly unlikely.
That, at least, is good news for those out shopping for a new home or looking to refinance their current one.
If you have any questions about the Los Angeles market or are looking to buy or sell a home, please call us at 323-829-8811. Or email Susan Andrews at susan@luxurylahomes.com.
Contact us anytime if you ever wonder “What’s my home worth”? Or visit HollywoodHillsValue.com for a free no obligation home valuation.