Will Slowing Foreign Buying of US Properties Derail the Housing ‘recovery’?

Foreign buying of US real estate appears to be slowing, will these compound on the recent setback brought by rising bond yields?

Reports the CNBC.com

The flood of money pouring into U.S. real estate from the overseas rich may be slowing.

Foreign purchases of real estate in the U.S. dropped 17 percent in the 12 months ended in March compared with the same period a year ago, according to the National Association of Realtors. The high end of the market felt the brunt of it.

Sales of homes priced at $1 million or more to overseas buyers dropped to about 6.5 percent of sales from 10 percent—the sharpest drop in any price category.

There are several possible reasons for the slowdown. A stronger dollar makes U.S. real estate less attractive on a currency basis. The NAR said mortgage standards also tightened, making it harder for overseas buyers to qualify for loans.

But the main reason is economic weakness overseas. "Economic slowdowns in a number of major foreign economies appear to have been a major reason for a drop in sales; a number of potential customers apparently held off on purchases," the report said.

Wealthy buyers from China, Brazil and Russia have been critical to the real estate recovery at the high end of the market—especially in Miami, New York and parts of California. Brokers fear that if wealth creation slows in emerging markets, high-end home sales could also weaken.

Since bond yields exploded last May, the “recovering” US real estate industry has shown signs of fatigue strains. 

Mortgage applications has gone down along with rising  mortgage rates (lower window, rates are inverted).

This has also been reflected on a sharp downturn in Home Sales (upper window) according to the Zero hedge

Housing starts and housing permits has also tumbled, again from another Zero Hedge report

The Reuters recognizes of the June decline of US existing home sales, but attempts to paint a bullish picture by referencing year on year increases. But last year bond yields were at a low, the tumult in the bond markets began only this May. So one data covers differing conditions at different time frames.

Meanwhile contra Reuters, the cynical Zero hedge notes of negative month on month changes on existing home sales.

Construction trends haven’t been rosy too. Multi starts and single family starts have been in a short term decline even as builder’s sentiment soared.

Don’t worry, be happy. The Northern Trust economic team believes that the “bloom is not off the housing recovery yet” since they see a “steep and rapid climb” of mortgage rates as “unlikely”. This means that experts from Northern Trust see the recent “steep and rapid climb” as an anomaly. 

However, stock prices of major homebuilders as DR Horton (top) and Lennar (bottom) have hardly been lifted by record US equity bellwethers.

Both interest rate sensitive stocks plunged on the re-emergence of the bond vigilantes.

The general decline of Lumber prices have also barely been in support of a sustained recovery on US housing.

And so with copper prices (which has also been a China story)

And finally, while negative equity has fallen, many millions of “Americans still owe more than what their homes are worth”, according to the Dr. Housing Bubble.

Delinquent loans continue to rise.

These indicators don’t seem to support a "robust" "real" housing recovery but instead reveals of a fragile boom prompted by easy money speculations.

Yet if the bond market vigilantes continue to impose their presence on the global markets, then yes, growth in emerging economies are likely to suffer a pullback, which will also likely affect buying patterns on US properties. 

Equally, higher bond yields transmitted to higher mortgage rates risks reversing the current boom phase of the reflated US housing bubble.

So the bond vigilante triggered headwinds confronts both internal and external dynamics of the US housing boom.

Interesting times indeed.