Credit Crunch Constrains International Home Buyers in U.S. Market
September 22, 2009
Interest in U.S. real estate by international buyers declined due to the worldwide recession and severe credit crunch, according to the 2009 National Association of Realtors Profile of International Home Buying Activity.
The share of Realtor clientele who are foreign buyers is smaller than in previous years, but among those purchasing nearly half paid all cash – bypassing the mortgage process. Twenty-three percent of survey respondents served at least one international client in the 12-month period between the end of May 2008 and the end of May 2009, down from 26 percent in the 2008 study. During this period an estimated 154,000 homes were sold to foreign nationals, which is down from approximately 170,000 international transactions during the previous 12 months.
The median price for a home paid by foreign buyers for the year ending in May 2009 was $247,100, higher than the overall national price of $198,100 in 2008. A significant number, 45.8 percent of foreign buyers, paid cash for their property, in part because obtaining a mortgage was more difficult than in prior years. The total dollar volume was $38.7 billion.
Lawrence Yun, NAR chief economist, said recent improvements in the credit market will help reverse the slide in foreign buyers.
“Stock market gains and improving bank balance sheets will permit a greater amount of lending for second home purchases,” he said. “In addition, expanding foreign economies for international buyers and favorable exchange rates give them more purchasing power, particularly in a period of record high affordability conditions in the United States. Property investment here generally builds wealth over the long term.”
U.S. laws do not restrict or scrutinize most property purchases by foreign nationals. There are few barriers to owning property here, unlike transactions in many other countries, although immigration laws prohibit foreigners from remaining in the U.S. continuously for more than six months without a special visa. In addition, international investors are afforded the same property rights as those enjoyed by U.S. citizens.
The top five countries of origin for foreign buyers were Canada, with 17.6 percent of buyers; the United Kingdom, 10.5 percent; Mexico, 9.8 percent; India, 8.5 percent; and China, 5.4 percent. The percentage of buyers from Canada, the U.K. and China declined from the previous study, while purchasers from Mexico and India increased.
Although most buyers were from North America, Europe and Asia, buyers from Latin America, Africa and Oceania also purchased U.S. real estate.
Foreign buyers were active in every state and the District of Columbia, with the most popular states being Florida, which accounted for 23.0 percent of all foreign purchases; California, 13.0 percent; Texas, 10.7 percent; and Arizona, 7.1 percent. These states are major gateways into the U.S. from other countries and also offer relatively mild climate.
California saw a notable rise in foreign interest as affordability conditions improved markedly in the state last year. “Florida is the most popular state for European and Latin American buyers, while Asian buyers are drawn to California,” Yun said.
The study shows 69 percent of international purchases were single-family homes, while condos accounted for 18 percent. Townhomes made up 8 percent of transactions, with commercial property at 4 percent. Nearly 46 percent of properties were in suburban areas and 25 percent in urban environments. The rest were evenly split between resorts and small towns or rural areas.
The prime purpose for purchasing a property in the U.S. is to use it for a vacation home, cited by 33.9 percent of respondents; for both investment and vacations, 23.5 percent; as a residential rental property for investment, 18.3 percent; and commercial property for investment, 3.5 percent.