March 1 has come and, for the moment, threat that its arrival would trip a 25% U.S. tariff on $200 billion of Chinese goods is off the table.

Word is there are even encouraging signs that progress by negotiators on both sides of the U.S.-China trade war can be brought to a truce in the next several weeks. A summit at Mar-a-Lago has been discussed.

This type of global warming--on the trade front--would benefit the economies, not only of both the bickering super powers, but of producers and consumers across the international import and export ecosystem. If punitive tariffs, now choking about 60% of goods and services traded between the two behemoths, were lifted or eased, buying and selling on both sides would become less expensive in a freer marketplace.

Resolution is far from guaranteed. We've just seen what can happen when expectations for an important international deal outpace realities.

Moreover, reports are that many U.S. firms that do business with China are downbeat, and a number of large enterprises with operations there are paring them down, expecting U.S.-China conditions to deteriorate. As China just plain favors its domestic market players over those from elsewhere in the world impediments for outsiders only get worse, and many strategic players don't see a way around that.

The question--particularly among residential developers and builders in a few critically important U.S. markets--is what all these convulsions mean for what has been a foundational dimension of U.S. demand for new homes and communities from the time housing's recovery first became real way back in 2011 and 2012.

The Chinese buyer.

Will signs of a thaw in ice-cold trade relations--or even an eventual pact--re-catalyze the Chinese economy to its former super-strength, relax some of the stiff strictures on how and where Chinese--family and company--capital can move offshore, and improve exchange rates, all in time to rekindle demand among Chinese buyers of U.S. new homes and communities?

This is a question Meyers Research senior economist Ali Wolf has looked at in a couple of must-read analyses, here and here.

Wolf sets the table with a take on the critical ways the U.S. and Chinese economies are joined inextricably--and when one of them sniffles, the rest of the global economy gets a cold. A ripping 6.6'% GDP--China's latest economic benchmark--may look enviable from where 3% economic growth is a major feat, but looks can deceive, Wolf notes. She writes:

Data coming out of China shows multi-sector deceleration ranging from luxury goods to manufacturing and the service industry. Alibaba, a good gauge of the Chinese consumer with data from hundreds of millions of shoppers, exemplified the trend with a drop in earnings in the latest quarter.

Caterpillar, Apple, and German-based Adidas all reported a negative shift in demand from China in their earnings report. A pullback in Chinese demand for technology, real estate, automobiles, etc. could signal global problems that could be felt domestically as well. Additionally, if investors start to get nervous about China’s sustainability, companies with a high exposure could see that reflected in their stock price.

Clearly, Wolf concludes in her second piece, the root cause issues that have convulsed relations between the super powers have shown up as pretty severe symptoms in the United States housing market, just when its six-year plus recovery can ill-afford to deal with them.

All recovery long, Chinese home buyers in the U.S. practically defined demand--cash-rich, discretionary, motivated by good schools and new market opportunities, etc. As Wolf reports, that momentum has taken a turn for the worse, as economic, regulatory, and foreign currency exchange obstacles have each intensified in the past 12 to 18 months. Wolf writes:

Our Principal of Advisory, Mollie Carmichael, analyzed California total home sales over the past two years and saw an extraordinary shift. Looking at Central Orange County as an example, we broke out the sales activity by ethnicity, life stage, and typical price ranges. We discovered several trends with the Asian buyer.

  • A sharp decline in sales between $1.0M and $1.3M; and
  • In the first half of 2018, purchase activity was most concentrated in the $850K-$999K range followed by $700K-$849K. The order flipped by the second half of the year, showing a movement towards lower price points.

Data from Zonda shows the pullback in demand coincides with the substantial slowdown in Southern California contracts in the fourth quarter of ’18 compared to the same period in ’17.

Among the more worrisome observations, while the U.S. remains the No. 1-searched market among Chinese online searchers in absolute terms, other places around the world have cropped up fast as alternatives to the American Dream. In the last quarter of 2018 alone, online searches for Thailand, Greece, Germany, and Spain grew 100% or more, while growth in U.S. searches--albeit, off a much larger base--were up 8%.