What we perceive to be the state of the real estate industry is actually the culmination of a wide range of factors. There is no single indicator that, when independently addressed, can account for the overall condition of the market. There are, however, several factors that impact the direction of the market more than others. Home values and mortgage rates are amongst the most well known indicators of market health, but many may be unaware of the other prominent contributors. Foreign investments, in particular, have had a large influence on the direction of the current recovery. In fact, the previous year was the beneficiary of $92.2 billion worth of foreign transactions – the most the U.S. has ever seen.
According to data presented by the National Association of Realtors (NAR), international buyer activity increased by as much as 35 percent in the year leading up to March 2014. Of particular interest, however, is the percentage of existing-home sales these international buyers represent. During the 12-month period, international buyers focused the majority of their acquisitions on high-end homes in Florida, California, Texas and Arizona. The enormity of their purchases only accounted for 7 percent of total existing-home sales. While $92.2 billion were injected into the housing market, it was relegated to a select population of expensive properties.
“Foreign purchasers are interested in U.S. real estate for a variety of reasons: as a place to live for those relocating in the U.S., for a job or for children going to college, for investment and portfolio diversification, and for vacation purposes,” according to the NAR report.
The Chinese are responsible for a majority of said purchases, as many are looking for a safe haven for their families and fortunes. In fact, a staggering 24 percent of all international investments stem from Chinese buyers. As the largest pool of international investors, China acquired approximately $22 billion in assets from the U.S. housing market. Their purchases represent a 72 percent increase from those in the previous year.
While Chinese buyers were far and away the largest foreign participants, buyers from five countries accounted for more than half of all international transactions. Canada is currently sitting in second place on the list of international investors, as our neighbors to the north have spent about $13.8 billion on real estate in the United States. Both the United Kingdom and India followed behind Canada, each investing $5.8 billion. Mexico spent $4.5 billion, placing them in fifth amongst international investors.
Foreign investors have definitely focused their attention on a handful of select states. At the end of the 12-month NAR study, Florida was the most desired locale for overseas buyers. The Sunshine State attracted 23 percent of the international deals that took place. California followed with 14 percent, Texas with 12 percent and Arizona with 6 percent. And it was cash, not surprisingly, that facilitated the majority of these foreign transactions. Sixty percent of all purchases by foreign buyers consisted of cash, up from a third in 2007.
The mean price for sales to international buyers was $396,180 for the 12-month period, compared with $247,417 for all U.S. existing-home sales. Over a third of homes sold to international buyers were for more than $500,000.
Chinese buyers were the biggest spenders. While Chinese investors did not acquire the most properties, they did spend the most per acquisition. The mean price Chinese buyers paid for a home hit $590,826. The report said over half of reported purchases by Chinese buyers were in California (35 percent), Washington state (9 percent), and New York (7 percent).
The reasoning behind Chinese purchases, however, remained staggered. Nearly half of them acknowledged that their purchases were strictly for “vacation/rental” purposes. Subsequently, 39 percent expressed an interest in using the homes as a primary residence.
While international investments are higher than they have ever been, some experts predict the trend to continue. Chinese purchases of U.S. homes are likely to continue increasing as the country’s swelling ranks of affluent consumers seek refuge for both their families and accumulated wealth.
“A lot of people are trying to hedge against a generally bearish outlook for the Chinese economy,” said Thilo Hanemann, who tracks cross-border investments. “Buying real estate overseas has been in the past limited to a relatively small group of wealthy individuals and sometimes government officials. But it’s become a much bigger trend, involving affluent middle-class people.”
