9/17/2011

High Style in the City

According to an article found today in Barron’s Financial News, the market for high-end urban real estate in the United States is back on the rise. The article, entitled “High Style in the City” , states that unit sales in Manhattan, Miami, and San Francisco are up by as much as 50% since 2009 and that prices are up 15% or more from their 2008 lows.

The article attributes the rise in high-end urban real estate to an increase in the number of new foreign buyers that have recently entered the market. While wealthy Russians, Indians, and Europeans continue to have a strong presence in high-end real estate investing in the United States, a new group of foreign investors have recently entered the market. An expanding wealthy class from China is looking for new places to invest, as are Brazilians, who are currently enjoying a big currency benefit from the Real, which is up 35% against the dollar since January 2009. These new investors are choosing to invest in U.S. properties because the luxury market here is significantly undervalued compared to other major cities throughout the world.

This article does a great job of illustrating how a shift in demand can take place as new buyers enter the market. This year in Manhattan the demand curve for apartments and townhouses in the $5 million-plus range has sifted outward as the new Chinese and Brazilian investors have entered the market. This has caused an increase in the number of units sold accompanied by an increase in the price of properties being sold.

7 comments:

Cameron said...

The simple formula to explain this shift is price per unit * quantity demanded = total revenue.
The demand for luxury properties increases as foreign investors enter the market when supply is fixed.

Dr. Tufte said...

-1 on Sam ... you've got to proofread what you write!

I liked the post though, especially the last paragraph that tied it back to our "book learning".

We can even tell that the supply curve has got to be relatively steep because prices have run up faster than quantities.

Sam said...

Errors are now corrected.

Dr. Tufte said...

Thank you for making the correction ... but I don't give the points back in an MBA class.

Mitchell Stone said...

I am a big beliver in consumer confidence and maybe this good news, whether it comes from foreign investors or not, is something this economy needs. This influx of money from foreign investors is like a shot of adrenaline to our economy. Plus, this shift in demand leads to a higher equilibrium price, as stated in your post, which, as I mentioned above, some positive news for consumers, which is something we need, given all the negativity we hear about the economy.

Aaron said...

I couldn't agree more with Mitchell. It is extremely refreshing to hear positive news regarding the U.S. economy, especially in the housing market that has been hit so hard. It is also encouraging, as your post and the article suggest, that foreign investors seem confident that the United States will continue to crawl out of this seemingly endless recession. It makes me wonder which stage our economy is at in the economic recovery cycle. Recovery stage? Or, are we not quite there and still in trough?

Dr. Tufte said...

-1 on Mitchell Stone for grammatical errors.

The thing is (macroeconomically), consumer confidence doesn't appear to be consistently important to understanding business cycles. That bugs economists a bit, but we're not sure what to do about it.

In response to Aaron's question, we are undoubtedly past the trough and in recovery. The problem is that it isn't a strong recovery.