by Wolf Richter, Wolf Street:
“It doesn’t mean the market is going to crash tomorrow.”
Money from Chinese investors “has dried up,” a residential real-estate broker in San Francisco told me a few days ago, as he was fretting about the local housing market. It’s a result of the crackdown by the Chinese government on capital flight, he said.
Chinese investors have been buying about 5% to 7% of residential properties in San Francisco, possibly more in parts of Silicon Valley. And other brokers are now publicly chiming in about money from China drying up.
“We’ve recently noticed a slowdown,” Jack Woodson at Alain Pinel Realtors in Menlo Park in Silicon Valley, told Bloomberg. “Buyers are taking more time to decide about making offers.” He fingered Chinese investors who’ve suddenly curtailed their purchases after they had “really been driving the market.”
Data coming out of China appear to support the thesis of a sudden money vacuum in some of the toniest West Cost Housing markets.
In February, foreign exchange reserves had dropped to $3.20 trillion as a result of rampant capital flight and the central bank’s efforts to prop up the yuan. It was the lowest level since December 2011, down $790 billion from the peak in June 2014, after a record plunge in 2015 of $513 billion. But in March, foreign exchange reserves rose to $3.21 trillion. And in April, instead of re-plunging, they rose again to the great surprise of the onlookers, hitting $3.22 trillion.
And China’s State Administration of Foreign Exchange (SAFE) reported that capital outflows have begun to ease. Net foreign exchange sales by commercial banks dropped to $23.7 billion in April, from $36.4 billion in March, and less than half of the $54.4 billion in January.
This money vacuum is being felt in Silicon Valley. It coincides with the tech slowdown, the iffy stock market performance, and the swoon in the IPO market. Bloomberg:
Silicon Valley, the most-expensive U.S. housing market, is seeing a pullback by the wealthiest homebuyers after a four-year real estate boom marked by bidding wars and multimillion-dollar prices.
In Palo Alto – where the median home price was $2.5 million in the first quarter, according to Zillow – the 11 listings of homes costing over $5 million as of May 14 have been on the market a median of 30 days. Gone are the bidding wars “when newly minted millionaires from tech initial public offerings raced against buyers from China to scoop up anemic inventory.”
And price cuts – the bane of the industry – are back in vogue. Bloomberg cites a home in a prime area of Palo Alto that, after sitting on the market since the end of March, had its price slashed by $500,000 to $7.5 million. It’s still on the market, having joined “a growing inventory of high-end homes in the area that are taking longer to sell.”
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