We may feel that prices are getting too high in the U.S. but our real estate is attracting foreign buyers in record numbers. A new reports shows a 49% surge in the amount of money foreigners spent on U.S. residential real estate to a record $153 billion dollars. It says that most of the buyers were from Canada.
The National Association of Realtors’ newly released report on international buyers has a few other surprises, as well. It says that Chinese buyers still spent the most money on U.S. real estate — about $32 billion dollars — but that Canadian buyers represented the biggest increase in buying activity. It says Canadians spent a total of $19 billion on U.S. homes. That’s a new high for Canada and about three times what Canadians spent last year. Chinese buyers increased their buying activity by about 16%.
Other Countries See U.S. as Affordable
NAR’s chief economist Lawrence Yun says that even though U.S. markets may be considered expensive by our standards, Canadians are seeing them as affordable. He says prices have risen steeply in some Canadian cities, especially in Vancouver and Toronto. Prices reportedly rose almost 30%, over a year’s time, in those two cities. He also says that the strong dollar makes U.S. prices even more expensive for foreign buyers, but that some are worried that the dollar could get even stronger, making U.S. properties pricier, if they wait.
Canadians were not the only ones to buy U.S. homes in greater numbers. The report shows a surge in activity from buyers in the five top foreign countries for U.S. homes purchases. That includes China, the United Kingdom, Mexico, and India along with Canada. Yun says price appreciation is going up faster in “all” of those countries than it is in the U.S., not just in Canada.
He also says that foreigners are paying more for U.S. homes than U.S. residents. NAR reports that the median price for an existing single-family home bought by a foreigner is about $300,000. That’s quite a bit more than the $235,000 median for locals.
Many Buyers are U.S. Immigrants
Another big surprise — about half of the foreign buyers were U.S. immigrants. They are apparently not worried about the political and economic turmoil here in the U.S. including the uncertainty over federal immigration policy. Yun says foreign buyers still see the U.S. as a “safe and secure place to live, work and invest.”
The report shows that about 10% of the total dollar value of existing home sales went to foreign buyers from April of last year through March of this year. That’s up from 8% in 2016. The number of single-family homes purchased by foreigners — almost 285,000.
Where are They Buying?
The report shows that almost half of those foreign purchases were in just three states — Florida, California, and Texas. Florida attracted the most Canadian buyers who are cashing out of pricey Canadian homes in search of lower-priced vacation homes. Chinese buyers spent most of their money in California, often as a way of parking money they want to get out of their own country. For Mexicans, many stepped across their northern border for properties in Texas. Two other popular states were New Jersey and Arizona.
All this activity is adding a lot to the demand for U.S. housing that’s already experiencing a supply shortage, and according to Yun, this activity is pushing up prices here. Case-Shiller says that home prices have risen 5.5% over the year that ended in April. They hit a record high in September, and have been rising consistently since then.
Putting It All Together
Despite higher prices in many parts of the U.S., there’s still good news for our U.S. investors because most of the country is actually very affordable. Bubble markets like Seattle, San Francisco, Los Angeles, New York and Miami have pushed national home prices higher, but there are many places to find a deal for both foreign and domestic buyers.
If you are an investor looking for single-family rentals, you can still get an 8 to 12% cash-on-cash return in Texas, Florida, Ohio, and even parts of California like Chico, Fresno, and Riverside. This is highly attractive to foreign buyers if their own real estate is more expensive. For example, you can still buy homes in the Orlando area for under $200,000. In Texas, you can find property for as low as $100,000.
In California, you can still find deals if you look inland. My 24-year-old daughter bought her first home in Chico, just a few miles from the University, for $249,000. She will be paying the same amount for mortgage that she’d pay in rent, and if she rents it out, she will cash flow.
Also, more portfolio lenders are offering financing to foreigners with rates as attractive as 6%. If I were advising Canadians, I’d give them the same feedback I give to San Francisco residents: Sell your high priced properties and exchange them for high cash flow properties in emerging markets. Believe it or not, most of America is still emerging.