Foreign Investment in US Real Estate

BrickHouseContributed by Stephen Thompson, CFP® Canadians are the major foreign player in the US residential real estate market.  Recent reports released by The National Association of Realtors (NAR) confirm what many see in Arizona, California, and Florida.  Canadians have been taking advantage of troubled housing markets, strong currency, and sunny climates to purchase a winter or permanent residence in the United States.  They generally pay cash and choose to buy a single family, detached home.  More details about Canadian purchases and those of other foreign buyers follows below from the NAR studies. 

Foreign buyers are an important element in US residential real estate markets.  Several reports recently released by The National Association of Realtors (NAR) found that through the 12 month period ending in March 2013, foreigners purchased $68.3 billion of residential real estate, or about 6.3% of total residential sales.  While the total was lower than the $82.5 billion recorded in the prior period ending in March 2012, these sales represent the second highest dollar amount in recent years.  Several factors, the report says, contributed to the decline including economic slowdowns in home countries, concerns about the US economy, tightening mortgage standards, and reduced inventories.

Reasons for the large presence of foreign buyers varies, according to Wall Street Journal reports.  Buyers from Canada or China, economists maintain, are diversifying their real estate holdings away from their home markets because of concerns about real estate overvaluation there.  Many of these foreign buyers see US property as “on sale,” thus offering good appreciation or rental income flows.  Other buyers from Russia or Venezuela seek property in a safe haven country. 

Foreigners buying US residential real estate are about evenly divided between those who reside outside the US and those who are recent immigrants. The preferred property is a single family, detached house in two-thirds of the purchases.  The NAR study found just over half of these international sales were housing costing $250,000 or less. 

Five countries comprise more than 50 percent of the foreign buyers.  China, Canada, India, Mexico, and the United Kingdom make up about 53 percent of foreign buyers.  Canadians are by far the largest component of foreign buyers.  Since 2008, Canadians have stayed in the top spot except for one year, 2009, and during that period, Canadians have maintained a share of at least 23 percent.  Last year, the Chinese were second at 11 percent.

Purchase price varies by country among the foreign buyers.  At the top of the five countries were the Chinese who paid a median price of $425,000.  The NAR study found Mexicans paid the lowest median price, $156,250.  For Canadians, the median price paid was $182,955 for residential real estate.  Nonetheless, the median price of $275,862 for all international buyers is well above the $179,867 median price paid by US buyers.  The study notes that about 63 percent of foreign purchases were paid fully in cash versus about 30 percent for US buyers.

International buyers concentrate their purchases in a few Sunbelt states.  About 58 percent of international clients purchase real estate in Arizona, California, Florida, New York and Texas.  Florida ranks at the top with foreign buyers reaching over twenty percent of the residential market.  Canadians focus on the Arizona and Florida for the warmer weather. 

Arizona captures nine percent of foreign buyers, but is the preference of 66 percent of Canadians, the study finds.  Foreign buyers from Europe and Latin American each make up about 10 percent of foreign purchases in Arizona.  In contrast, California has 17 percent of all foreign buyers in the US; however, Canadians represent only 11 percent of foreign buyers with Asians 54 percent.  In the year ending March 2013, NAR found Florida had 23 percent of all foreign buyers in the US.  Foreign buyers in Florida are a well-diversified group.  Canadians represent 39 percent of foreign purchases in Florida with Latin Americans 29 percent and Europeans 23 percent.  Texas has nine percent of foreign buyers but of the state’s foreign buyers, Latin Americans dominate with 51 percent and Canadians 15 percent. 

Canadians are an important segment of the foreign market.  According to the NAR study, Canadians like the sun and pay cash for single family houses.  About 71 percent of purchases made by Canadians in the US were in Arizona, California, or Florida.  About 86 percent of purchases were all cash transactions.  Most popular were single family, detached houses which were 92 percent of all purchases. 

The US high-end, luxury residential real estate market draws substantial numbers of foreigners.  The NAR study reported that prime property in Manhattan is less than half the price per square foot of similar residences in London.  Foreign buyers represent a 45% share of Miami properties and about 30% in New York City, Los Angeles, and San Francisco.  Top buyers were from China, Russian, and Brazil. 

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