Could a Dip in Foreign Buyers Affect U.S. Home Hunters?
Could a Dip in Foreign Buyers Affect U.S. Home Hunters?
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Foreign buyers, those glamorous international folks renowned (not always accurately) for scooping up majestic urban residences and beachfront condos, dropped a little less cash this year on U.S. homes. And that could benefit everyday buyers who don’t have similar bottomless bank accounts. For real. Eventually.
A stronger dollar, weaker international currencies, and rising U.S. home prices led foreigners to spend a bit less—1.25%, to be exact—on U.S. property from April 2015 through March 2016, according to the National Association of Realtors® 2016 Profile of International Activity in U.S. Real Estate. They closed on about $102.6 billion worth of sales during that period, according to NAR’s survey of nearly 6,000 Realtors®.
Foreigners living abroad in countries other than the U.S., however, pulled back the most—and will probably do so even more in coming months.
“Given economic weakness outside of the U.S., coupled with strong gains in the dollar and in home values, many foreign buyers [living abroad] became sellers,” says Jonathan Smoke, chief economist of realtor.com®. A few key markets in top foreign buyer states (Miami, Phoenix, San Francisco) are seeing gains in inventory this year, bucking the national trend of fewer homes for sale, he adds.
“Now with Brexit, the dollar has strengthened even more, so we’re likely to see a further decline in foreign buyers this year, especially from the United Kingdom,” Smoke says.
Fewer buyers, more properties on the market, and lower mortgage rates (thanks again to the U.K.’s escape from the European Union) could make it a bit easier in coming months for harried house hunters to finally become homeowners, Smoke says.
But international purchasers, often big spenders from China, typically aren’t competing with cash-strapped aspiring homeowners in search of bargains. Smoke did point out, though, that sometimes non-Americans will scoop up more affordable condos in places like Florida.
Foreign buyers spent about 24% more than Americans did on their residences. Foreigners shelled out a median $277,380 on their U.S. properties, compared with an overall median price of $223,058 for an existing residence (i.e., not a newly constructed home).
And although international buyers might be curbing their spending, they still gobbled up 3% more homes from April 2015 to March 2016 than in the previous 12-month period, purchasing an impressive 214,885 residences, according to the report. About half of the sales were all cash.
Most of the buyers, 59%, lived in the U.S., according to the report. The rest lived abroad and typically rented out their newly purchased U.S. residences or used them as vacation homes.
For the second year in a row, Chinese buyers shelled out the most—a whopping $27 billion— on U.S. residences compared with other international property owners, according to the report.
Chinese purchasers did pull back a bit though, from $28.6 billion a year earlier, as their country’s economy slowed and its government implemented new regulations to make it more difficult for its citizens to invest abroad.
But Brexit could become a “game changer,” says Edward Mermelstein, a New York–based real estate attorney at Rheem Bell & Mermelstein. Unlike realtor.com’s Smoke, he believes the U.K.’s decision to leave the European Union will send more buyers to America.
And although he doesn’t expect foreign buyers to return to the same buying highs of recent years, he does expect sales to pick up as a result.
“Sales activity from U.K. buyers could very well subside over the next year, depending on how severe the economic fallout is,” NAR’s chief economist, Lawrence Yun, said in a statement. “However, with economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability.”
After the Chinese, Canadians spent the most on U.S. real estate, to the tune of about $8.9 billion. They were followed by Indian citizens, who purchased about $6.1 billion worth of residential real estate. Rounding out the top five were Britons, at $5.5 billion, and Mexicans, at $4.8 billion.
“Since Brexit, we’re seeing a big uptick in inquiries for luxury property from everywhere in Europe and again from China,” says luxury real estate agent Dolly Lenz, who’s based in New York. Those inquiries are primarily for residences in the range of $10 million and up.
Foreign buyers are particularly interested in owning residences in warm climates.
Sunny Florida led the pack with 22% of purchases. The state was followed by California, at 15%; Texas, at 10%; and Arizona, at 4%. New York, one of the world’s great financial centers (as well as a pretty fun place to be if you have money), made the top five—but with a surprisingly low 4% share of international buyers.
But New York’s status could soon change, as it was competing with London real estate to some degree, says New York–based real estate attorney Petro Zinkovetsky. Now that the British pound has dropped to a 31-year low, affecting home values as well, American residences across the pond are suddenly much more appealing.
“For most foreign buyers, they view real estate … as a way to preserve their wealth,” says Zinkovetsky, whose international clients mostly hail from Eastern Europe. “U.S. real estate is an alternative to putting money in the bank. It offers a greater rate of return than most of the banks.”
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