The availability of affordable third-party mortgage capital is perhaps the most important factor determining whether a real estate market is booming, stagnating, or busting in any region nationwide.
People need money to get into and out of the vast majority of real estate properties. Sellers either need to find qualified mortgage borrowers/buyers or they need to find super-wealthy all cash investors.
A seller either finds a wealthy (U.S. or foreign) individual buyer or a sophisticated and deep-pocketed hedge fund or crowdfunding platform that has access to millions or billions of dollars for an all cash transaction. Or a seller may need to find owner-occupants who qualify for a highly leveraged, government-backed or insured mortgage option, such as FHA or VA.
Cash Is King in More Affluent Regions
Prime coastal properties in California, Oregon, Washington, Texas, Florida, New York, and other regions usually attract the most affluent buyers for residential and commercial real estate properties.
In places like China, Japan, Canada, Europe, and South America, there’s an abundance of super-wealthy investors buying up multiple U.S. properties as primary, secondary, or investment properties, especially in the prime coastal metropolitan regions near Los Angeles, San Francisco, Seattle, Miami, Boston, and New York City.
Per the National Association of Realtors (NAR), here are the numbers for foreign investment trends in recent years:
Total Number of Sales to Foreigners
2015: 209,000 (projected)
Residential Housing Dollar Amounts Paid by Foreigners
2010: $66 billion
2011: $66 billion
2012: $82 billion
2013: $68 billion
2014: $92 billion
2015: $104 billion (projected)
Average Residential Existing Home Purchase Prices Paid: U.S. Residents vs. Foreigners
2010: U.S. Residents: $217,500; Foreign Investors: $311,400
2011: U.S. Residents: $217,800; Foreign Investors: $315,900
2012: U.S. Residents: $212,200; Foreign Investors: $405,000
2013: U.S. Residents: $228,400; Foreign Investors: $354,200
2014: U.S. Residents: $247,400; Foreign Investors: $396,200
2015: U.S. Residents: $255,600; Foreign Investors: $499,600
Per the NAR’s own numbers, the difference in prices paid for existing homes by U.S. residents compared to foreign investors is almost $244,000. This is equivalent to foreign investors paying almost DOUBLE the amount for an existing U.S. home as compared to a U.S. resident.
American sellers who have $1 million+ coastal properties are quite happy to find wealthy foreign investors willing to take well-above market value with all cash offers and very quick closings.
Affordable & Not So Affordable Home Regions
Should you not be so fortunate as to own the prime multi-million dollar properties that interest wealthy foreign investors or U.S. based hedge funds and crowdfunding platforms, you may want to focus on some of the more affordable housing regions that cater to the majority of Americans.
Buyers, sellers, agents, mortgage brokers and bankers, inspectors, appraisers, escrow and title insurance officers, and other third-party professionals involved in real estate can focus on the topics or statistics (such as unemployment rates) they see as important to the general direction of the housing market (up, flat, or down).
Yet, the most important factor is whether or not enough buyers can qualify for highly-leveraged (near 97% loan to value) third-party loans, since almost 97% of all recent residential mortgages nationwide were government-backed or government-insured loans (e.g., FHA, VA, Fannie Mae, Freddie Mac, USDA, etc.).
A recent study by RealtyTrac and Down Payment Resource assessed the most and least affordable housing regions in the U.S. The study analyzed and ranked 370 U.S. counties according to factors such as the median home’s mortgage payment compared to the historical average, average down payments, maximum income allowed for highly-leverage home ownership programs, etc.
Here’s what they found…
Top 10 Most Affordable Regions
1. Ashtabula County, Ohio
2. Imperial County, California
3. Hernando County, Florida
4. Clayton County, Georgia
5. Lackawanna County, Pennsylvania
6. De Kalb County, Illinois
7. Richmond County, Virginia
8. Baltimore County, Maryland
9. Madera County, California
10. Clark County, Ohio
Top 10 Least Affordable Regions
1. New York County, New York
2. Fairfax County, Virginia
3. Charleston County, South Carolina
4. Santa Clara County, California
5. Forsyth County, Georgia
6. Cherokee County, Georgia
7. Loudoun County, Virginia
8. Mecklenburg County, North Carolina
9. Fayette, Georgia
10. Oakland County, Michigan
The Bottom Line…
Individual investors who focus on higher-priced regions in the more affluent coastal regions may find themselves competing with wealthy (foreign and U.S.) investors and multi-billion dollar funds. Investors who target properties at or below median price levels should learn more about the mortgage-qualifying trends.
Either way, we all need money to get in and out of most real estate transactions since cash is king.
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