Global investors love buying U.S. homes. And while demand for U.S. houses soared during the pandemic, the demand this year was largely from U.S. citizens, not foreign buyers. The National Association of Realtors (NAR) reports that foreign investing in the United States this year hit its lowest level in a decade from April 2020 through March 2021. Will this trend continue, and is it for the good or the bad?
Who's been doing the buying?
Big-time foreign investors who've been buying U.S. real estate have come from the following five countries (in order of dollar volume):
- China: $4.5 billion
- Canada: $4.2 billion
- India: $3.1 billion
- Mexico: $2.9 billion
- The United Kingdom: $2.7 billion
The UK actually spent more this year, while the other top four spent less. China, Canada, and Mexico investing was down the most, by 50%.
Traditionally, foreign interest in U.S. homes has been fueled by new wealth and opportunity, not to mention U.S. real estate is viewed by foreigners as being a stable investment. Investing in their own or other countries tends to be riskier, as real estate investments in some countries could succumb to government whims -- that and the fact that even though home prices are rising in America, real estate in this country is still seen as a bargain compared to many other countries.
Where are they buying?
The top states for foreign real estate investing have been in Florida, Texas, California, New Jersey, and Arizona. Top cities according to NAR include Miami; Los Angeles; Bellingham, Washington; Kahulul, Hawaii; and New York City.
The situation today
Foreign buyers are still buying U.S. homes, only much less so lately. From April 2020 through March 2021, the NAR reports over $54 billion worth of U.S real estate was purchased by foreign investors, but that figure was down 27% year over year. And this is the fourth consecutive year of a decline in foreign investing in the United States.
Of the foreigners who bought U.S. real estate this year, 60% are living here in the United States, either as recent immigrants or holding a visa that allows them to live here. Foreigners who invest in the United States but who don't live here comprise the other 40%. Investment was down 21% from last year for the first group and 33% for the second.
Why foreign investing is down
NAR Chief Economist Lawrence Yun says the pandemic is the cause for much of the foreign investing being down this year because of travel restrictions and lockdowns. But even without foreign investment, demand from Americans has been so great this year that sales have fully recovered and were down only during the first few months of the pandemic.
Pros and cons of foreign investing
A benefit of foreign investment in the United States is the infusion of cash into local economies. This scenario was particularly important in the years following the housing market crash of 2008 and helped homeowners who wanted to sell during this time, as well as developers who had a market to sell to.
A drawback of foreigners buying U.S. property is they drive up prices. Foreign investors often pay more than the median price for a home, and they're often cash buyers to boot.
For example, says NAR, the median home price in America this year is $305,500, but the median price paid for a home by foreign buyers was $351,800 (15% more). And the median price paid by Chinese buyers was $476,500. Plus, 82% of U.K. buyers and two-thirds of Canadians paid cash, although many foreign investors take advantage of terms the U.S. offers on mortgage loans, typically more attractive than what foreign countries offer.
All this makes it tougher for Americans to afford homes, often causing would-be homeowners to become renters -- many times renting from the foreigners who bought the homes.
The Millionacres bottom line
Although foreign investment has been down in recent years, economists predict the U.S. housing market will mirror the Tokyo Olympics by being the top destination for overseas investment next year, while China will be in second place. (The United States won the most gold medals, 39, while China came in second with 38.)