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By New_Deal_democrat August 4, 2015 1:36 pm
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The US housing market's connection to the Chinese stock market
This is part 1 of a multi-part post.  I am going to argue that:
 
1. housing is not in any renewed "bubble," but
2. purchases by foreign buyers have become an increasingly important component of the rise in US house prices.
3. outside of housing, the US is in outright deflation, so
4. the Fed should not raise interest rates due to house price inflation.
5. Further, the crash of stock prices in China may make house price inflation a moot issue

To begin with, there has been a large increase in thcash sales of US houses since the Great Recession::

Not only do foreigners typically buy higher end houses, and not only do they typically pay cash, but in the last several years the Canadian, British, French and German buyers have been surpassed by the Chinese. According to the NAR's most recent Profile of International Home Buying Activity, through March

 
  • Approximately 209 thousand houses are estimated to have been sold to foreign buyers over the time period, approximately 4 percent of total Existing Home Sales.
More specifically;
 

"For the period of April 2014 through March 2015, total international sales were estimated at $104 billion, compared to the previous year's estimate of $92.2 billion. This represents 8 percent of the total existing-home sales dollar volume.

 

 ... NAR Chief Economist Lawrence Yun [said] "the amount of money spent has increased; this means international purchasers in the U.S. have become an upscale group of buyers, spending more money on fewer homes.

 ....

" .... For the first time, buyers from China exceeded all other countries in terms of units purchased and dollar volume, purchasing an estimated $28.6 billion worth of property....

"International buyers tend to purchase more expensive properties with the average purchase price being $499,600, compared to the overall U.S. average house price of $255,600. Chinese buyers typically purchased the most expensive properties, at an average price of $831,800.

....

"The majority of international purchases (55 percent) were made with all-cash, compared to about 25 percent of all purchases made by domestic buyers."

 

That means that roughly 4% of all home sales in the US are all-cash sales to foreigners, about 12% of all cash sales, according to Core Logic:

http://www.corelogic.com/blog/authors/molly-boesel/2015/07/cash-sales-made-up-34-percent-of-all-home-sales-in-april-2015.aspx#.Va0MJXD3arU

Almost certainly this big boost in foreign purchases of expensive US homes is a significant part of the continuing increase in house prices, despite the near stagnation of US payrolls.

Which means that the Chinese stock market crash, particularly if it is symptomatic of a larger outright decline in Chinese economic activity, is likely to bring an abrupt halt to that source of US housing demand.  And that, in turn, should lead to a moderation of US house prices.

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