Foreign Investors vs. Millenials: The Future of Real Estate
You have likely heard about foreign investors buying up real estate in mass volume with suitcases of cash. Experts and articles suggest this newer phenomena is driving the market with no end in sight with statistics supporting these claims. I hear this conversation continue at coffee shops, dinner parties and the like. I would like to suggest that the fear-mongering mentality of the news media has the goal to get the attention of the audience by selling stories, so I would like to provide an alternative perspective that I have assessed through my daily interactions with clients.
International buyers are not a new segment of the local market. I have been representing international buyers for over 13 years. I’ve helped them locate primary homes and investment properties for their families. These transactions have been with cash or financed through international lending programs via institutions such as HSBC.
PERCENTAGE OF INTERNATIONAL BUYERS: US REAL ESTATE
Why are they interested? There are multiple reasons to purchase local real estate as a foreign investor: establish residency for a business, children’s US-based education, planned immigration or diversifying one’s portfolio, to name a few. My clients come from all parts of our great world, but the growth of foreign investor interest, in particular over the past several years, has been driven by the significant drop in US real estate values and overseas regulations creating better opportunities to diversify. Previously, at my state-level real estate leadership meetings, I heard little conversation on international investing other than in the metropolitan areas, so possibly now the foreign investing is more widespread, which has captured the attention of our community. Either way, international investing has been a segment of the market just as buyers looking to up-size or down-size, so we expect and accept it. Since the great recession, we have seen a rapid growth in property values, locally exceeding 50%, that can be attributed to both domestic and foreign buyers. At what seemed to be the height of the market-run in 2012, we experienced tour buses full of investors standing in line to buy discounted real estate with either cash or very cheap money due to the interest rates. International investing seems to have been a more significant part of our current market cycle than previous cycles, but it is not the only variable.
If foreign investors weren’t the cause for the run-up of real estate values, what was? I suggest that cheap, cheap money was the single leading cause of our rapid growth. Lending institutions have been lending practically free money to borrowers who in turn bought low-priced real estate. The dirt-cheap money should hopefully be coming to an end soon, but not before it fueled a historic run on property values. Getting back to a state of normalcy in rates (rather than near zero) should indicate our market’s health, though getting off free money will likely hurt in the short term. There is more to it than just free money; you need motivated and confident buyers and willing sellers. It seems that finding the latter is our challenge, though not an uncommon one. The heavy investing in our local tech sector, enhanced by cheap money, has fueled confidence, increased salaries with companies wooing top talent and brought an influx of people to our area fighting not only for the top jobs, but homes. One of the most unique aspects to this market condition is what appears to be the youthful age of such intelligent individuals gaining the attention of venture capitalists and corporate leadership. I believe we are in the midst of a paradigm shift in how we utilize technology in our lives, which will inevitably result in a change to how we live day to day.
As a native to the Silicon Valley I have witnessed significant changes during my lifetime. My multi-generational (6th generation) roots in the Bay Area has given me perspective on the value of our communities and what drives its growth. I have witnessed a generational shift: original families who made homes in our sprawling communities of the 1950-60’s are making way for the next generation of families who want the best for their children in our diverse region.
This newer generation, Millennials, do not necessarily follow the same rites of passage, timeline and philosophy as their parents: when to drive, move out of parents home, marriage, children, etc., so I think it is important to consider the importance of this new generation and how it may affect traditional expectations. This demographic is the future of our communities, from future homeowners to business and community leaders. I have read analysis on the personality types of Millennials, but what I experience locally is a demographic of young, smart and excited individuals that want to change the world. I have noticed they are good at saving and have a long-term plan for their lives though many seem to be renters longer than other age groups; I think this is to save money and not yet having the desire of home ownership while they are trying to change the world through their careers. The future is very bright for this generation and I’m excited to witness the transformation. I do not think they are the largest segment of the real estate market today, but if you asked me which is more important and impactful to our market: foreign investors or Millennials, I take Millennials every day. These young individuals will ultimately start families with interest in quality schools, communities and homes.