MIAMI – Aug. 25, 2015 – Depending on whom you talk to, China’s recent economic problems could spell good news or bad news for Florida’s Realtors.
China devalued its currency, the yuan, in Mid-August, and on Monday the Chinese stock market dropped 8.5 percent in one day. But experts differed over the effect these changes will have on real estate sales.
“The devaluation of the yuan will make Florida real estate relatively more costly,” said John Tuccillo, chief economist, Florida Realtors. “This will discourage individual buyers and also Chinese companies looking to locate in Florida (who also generate residential sales).”
However, economist Sean M. Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida in Orlando, says that while “slower growth could reduce the influx of Chinese money into Florida real estate, increasing uncertainty about the economy in China could spur an exit of capital that could be invested in real estate in Florida, among other things.”
In addition, China’s currency devaluation could have a positive indirect impact on U.S. mortgage rates, according to Steve Cook, co-publisher and editor of Real Estate Economy Watch.
“The devalued yuan may keep mortgage rates low, at least temporarily,” Cook said. “Earlier this year, the Chinese government increased its purchases of U.S. Treasuries to the fastest pace since records began more than three decades ago. The buying has been fueled by China’s efforts to lift its export-driven economy by weakening its currency against the dollar.”
That buying spree has resulted in lower yields for U.S. Treasuries, which are now approximately 2.5 percent on a 10-year note.
“When those yields fall, as they are now, institutional investors turn to mortgage-backed securities,” Cook said. “This introduces more liquidity into mortgage markets and reduces rates that borrowers pay.”
Chinese buyers and investors have been playing a growing role in the U.S. residential and commercial real estate markets. An August report from Juwai.com, a real estate portal serving the region, said mainland Chinese buyers invested about $22 billion in U.S. real estate in 2014, and domestic Chinese-Americans invested $101.5 billion.
In Florida, Tuccillo said their impact has not been as great.
While there has been a significant increase in the number of Chinese buyers, “the Chinese are still a small part of foreign buyer activity in Florida,” Tuccillo says.