Foreign Investors Shying Away from US Properties
US real estate has long been attractive to foreign investors but it looks like international appetite might be shifting from luxury properties to those on the lower end of the cost spectrum. This could be due to an overall increase in higher home prices but the rising strength of the dollar might also contribute. Both of these variables result in higher costs for foreign buyers more in terms of negotiating. Also, there are not as many non-resident foreigners investing in our market.
National Association of Realtors chief economist Lawrence Yun comments “Weaker economic growth throughout the world, devalued foreign currencies and financial market turbulence combined to present significant challenges for foreign buyers over the past year.”
He goes on to say, “While these obstacles led to a cool down in sales from nonresident foreign buyers, the purchases by recent immigrant foreigners rose, resulting in the overall sales dollar volume still being the second highest since 2009.”
Indeed, foreign buyers purchased 1.3 percent less real estate—in dollar volume—between April 2015 and March 2016. The total cost of residential property value purchased by foreign buyers during this time was $102.6 billion. However, the number of these residential properties purchased during this time rose 2.8 percent (to reach 214,885 total properties).
According to executive vice president of online real estate marketplace Ten-X (formerly Auction.com), Rick Sharga, “The slight drop in dollar volume can probably be accounted for based on the types of properties purchased, and the locations of many of those properties. We’ve seen at least some evidence that foreign buyers — both investors and people just looking for a home — have begun looking beyond expensive markets like San Francisco, New York City and Washington D.C., and buying properties in smaller, less-expensive cities in the Southeast and Midwest.”
Sharga also adds, “The explosive growth of the Chinese economy created a very large number of very wealthy people. As that country’s economy has slowed down, those individuals are looking for better investment alternatives, and many have concluded that U.S. real estate is a smart bet.”
London had also been a long favorite of foreign investors but, of course, the Brexit vote has already brought upon dramatic shifts in the housing market in Britain.
Yun warns that while the UK could recover, “economic instability and political turmoil outside of the U.S. likely to persist, the world view of American real estate as a safe investment should keep demand firm even as pressures from a stronger dollar continue to weigh down on affordability.”