[REN #771] U.S. Real Estate: Big Drop in Foreign Buyers

Picture of flags for Real Estate News for Investors Podcast Episode #771

The U.S. housing market lost a lot of foreign buyers in the last year. The National Association of Realtors reports a stunning 36% drop in home sales to foreign buyers from April of last year to March of this year. It’s the result of a variety of factors both here and abroad. We’ll take a look at why that number is down, who’s still buying, and where. (1)

NAR’s 2019 Profile of International Transactions in U.S. Residential Real Estate was put together from a survey of realtors. (2) A total of 11,812 responded to this survey. The information they provided helps measure the number of sales going to foreign buyers along with where they are from, their buying preferences, and the “challenges and opportunities” they face in the U.S. marketplace.

The report shows that foreign buyers purchased almost $78 billion worth of existing residential real estate. That’s a 36% drop from the $121 billion in sales for the previous 12-month period. The drop was about the same for both non-resident and recently arrived foreign residents. Non-resident buyers accounted for $33 billion in sales which is down 37% from the previous year. Resident purchases were down $45 billion. That’s a 34% drop.

The dollar volume and the average sales price were also lower than the previous year. Foreign buyers bought a total of 183,100 properties for an average price of about $426,000. But why the drop off? NAR’s chief economist Lawrence Yun offered an explanation. He says, the pullback is due to, “A confluence of many factors.” Among them are “slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar and a low inventory of homes for sale.” Those are trends we’ve been hearing about but in this case, Yun says, “The magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S.”

But that confidence has not dried up. Yun also says, “Even though the numbers were lower this year than during the previous 12 months, international investors and buyers still spent and invested a great deal of money in U.S. real estate.” He says, “Home buyers from across the globe know that the U.S. market is still a safe, secure and promising place to invest.”

Foreign Buyer Countries

The country showing the most interest in U.S. real estate is China, as it has been in years past. But, those buyers also represent the biggest pullback. That may not be due to a lack of confidence however. The Chinese government has been tightening controls on foreign expenditures as a way to keep money inside the country. The total amount purchased by Chinese buyers topped $13 billion.

Canadian buyers were the second largest group of foreign buyers. They spent about $8 billion for about the same number of properties as the Chinese, at a lower price point.
Buyers from India were the third largest group with almost $7 billion in purchases. The United Kingdom was fourth with close to $4 billion. Mexico was fifth with more than $2 billion.

Most Popular Markets

If you’re wondering which markets were the most popular among foreign buyers — put Florida at the top of that list. 20% of foreign buyers bought property in Florida, including a large percentage of Canadians. Yun says, “Many Canadians and other foreigners found Florida so enticing because of its lenient tax laws” and “many Florida metro areas have an inventory of cheaper properties, relatively speaking – a combination which makes the state a very popular destination.”

California was also popular, despite the high prices. Those sales accounted for 12% of international purchases. California is especially popular among the Chinese. 34% of those buyers bought in California.

Texas was popular among Indian and Mexican buyers. Arizona attracted a lot of Canadian and Mexican buyers. New Jersey was also a hot spot for foreign buyers, especially those from the United Kingdom. North Carolina, Illinois, New York, and Georgia also attracted a high number of foreign buyers.

Foreign Buyer Price Points

The median price for foreign purchases was $280,600. That’s a little more than the median price for all U.S. existing homes. If you look at the purchase of homes selling for more than $1 million, you’ll find just 3% of U.S. buyers fall into that category. The number jumps to 8% for foreign buyers. Recently arrived immigrants also bought properties at a higher price point than non-resident foreign buyers.

As for who paid cash, 75% of Canadian buyers did so. Most Asian buyers paid with a mortgage. About half of the Chinese buyers paid cash.

The majority of buyers in each country purchased homes as a primary residence. Canada was the only exception. Most of those buyers bought U.S. vacation homes. Chinese buyers bought the most number of rental homes, but they also bought a bigger share of homes to live in as a primary residence.

What Kept Them Away

For those that didn’t score a property, the most common reason for not buying was that they couldn’t find a property they wanted to buy. 19% of them gave that reason. Many also said that prices were too high, or they could not get a loan. After that, immigration laws got in the way, along with property taxes and other reasons.

Whatever the reasons they had for not buying, the U.S. is still a desirable place to own real estate. Prices are high in some areas, but there are plenty of places you can find a bargain. If you need help with that, check out our recommended markets. We have lots of information about where you can buy single-family rentals in markets that are still affordable.

Links:

(1) NAR: Decline in Foreign Investment

(2) NAR: Profile of International Activity in US Real Estate

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