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Mike Schwiebert
Foreigners Continue to Come to America Buy Homes
by Keunwon Chung, Statistical Economist
International real estate purchases in the U.S. continue to account for a significant share of business for many REALTORS®. NAR Research's latest report, The 2008 National Association of REALTORS® Profile of International Home Buying Activity* indicates that that international buying activity in the
U.S. is widespread. Below are highlights from the report.
REALTORS® and their International Clientele
Of the REALTORS® surveyed, more than a quarter - 26 percent - served at least one international client in the 12-month period May 2007 to May 2008. About half of those clients actually purchased
a U.S.-based home. REALTORS® who sold homes to international clients reported that their transactions with these clients accounted for about 16 percent of their entire business. For about
8 percent of those REALTORS® who work with foreign buyers, more than half of their transactions were international sales. NAR estimates that between 150,000 and 190,000 homes were sold to
foreign nationals during that period.
People from North America, Europe and Asia accounted for more than 85 percent of recent foreign home buying transactions. The top six countries of origin for foreign home buyers, in rank order, were Canada, the United Kingdom, Mexico, China, India and Germany. This year, Canada replaced Mexico as the country with the largest share of foreign buyers in the U.S. The percentage of Canadian buyers doubled from last year, from 11 percent to 23.5 percent.
There are many similarities between domestic home purchasers and those from abroad. But there are also differences. Like U.S. buyers, the majority of foreign buyers purchased a detached single-family
home. But they were more likely than domestic buyers to purchase a condominium or town home. International buyers tended to purchase more expensive properties, which cost an average of 36 percent more than the typical domestic buyer's home purchase. In fact, more than 14 percent of properties sold to international buyers sold in excess of $750,000.
Location of Foreign Purchases
Recent foreign buyers purchased properties in every state and the District of Columbia. The South and West regions accounted for the most significant shares of foreign purchases. The most popular states where international buyers purchased homes were Florida, California, Texas and Arizona. New York , Washington and Nevada were also popular. The top four states were also the top destinations in last year's survey, and likely for the same reasons. Florida, California and Texas are major gateways into the U.S. from other countries. In addition, the climate in most areas of these states is relatively mild compared with that in states located in the Northeast and Midwest.
Home Price and Method of Payment
As mentioned above, foreign purchasers tended to buy more expensive properties than their domestic counterparts. International buyers paid a median $297,400 (in U.S. dollars) for a U.S. property - significantly greater than the $217,900 median price for a U.S. existing home of any type in all of 2007, but less than the median price paid by foreign buyers in the previous year's survey.
The majority of foreign buyers financed their U.S. property purchase with a mortgage. But mortgage financing is less common for them than for domestic buyers. Slightly more than half of foreign homebuyers - 54 percent - used a mortgage, compared to 93 percent of all home buyers in the U.S. The share of foreign purchasers financing through a mortgage decreased significantly from last year's survey results in which well over two thirds of international buyers used a mortgage.
Four in ten foreign buyers paid cash for their U.S. property. Reflecting the decline in mortgage financing, the share of foreigners paying cash increased from 28 percent last year to almost 43 percent in the current survey. Buyers from Canada and Germany were most likely to have paid cash for their U.S. purchase. In fact, buyers from Canada were more than twice as likely to buy a U.S. home with cash than via any other method.
Impact of Currency Exchange Rates
Foreign exchange rates have helped make U.S. homes more affordable for international buyers. The euro, for example, has strengthened 24 percent versus the U.S. dollar over the past two years. Home prices are also now more affordable in places such as Florida and Arizona, contributing to those states' popularity among foreign buyers.
Perceived Impediments to Foreign Purchases
The U.S. contains a large supply of real estate. It is also fairly easy to purchase a home in this country; the U.S. does not restrict or scrutinize most property purchases by foreigners, as happens in other countries. There are few barriers to owning a property. Except to the extent necessary to enforce U.S. laws and regulations (including immigration and homeland security), foreign participation in the U.S. housing market is largely free. Foreign investors have the same property rights in the U.S. as Americans do.
Even so, some foreign clients were unable to successfully purchase a home in the U.S. The NAR survey asked participating REALTORS® why they thought some of their international clients did not actually purchase properties. More than half of respondents reported that the cost of property was the main reason. ("Cost of property" concerns could include issues such as affordability, as well as a fear of possible price declines.) Nearly a quarter of REALTORS® indicated their international clients felt that U.S. property taxes were a burden. In addition, 27 percent felt that current U.S. visa restrictions/immigration laws were barriers to buying a property in the U.S. If visa regulations that favor longer stays for overseas buyers such as retirees from abroad were in place, sales to foreign purchasers would be even higher.
Conclusion
This latest research confirms what many REALTORS® know from experience - that the U.S. housing industry truly has no boundaries. Many international buyers recognize that real estate is an excellent investment and are drawn today by abundant inventory, low interest rates and a softer dollar. These conditions allow them to own their own piece of the American dream.
*The 2008 NAR Profile of International Home Buying Activity is based on responses from approximately 4,000 who serve foreign buyers. It describes international home buying activity in the U.S. over the 12-month period from May 2007 to May 2008 and updates information from the 2007 survey. The full report is available from NAR's Research Division or at www.realtor.org/research/research/reportsintl.
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