Here’s the second post of my two-part series based on the National Association of Realtors (NAR) 2014 survey of foreign buyers of U.S. homes.
What Price Homes Do They Buy?
Approximately 46 percent of U.S. home sales to international buyers were for less than $250,000. Chinese buyers bought homes with a median price of $523,148; followed by the United Kingdom, $350,000; India, $342,857; Canada, $212,500; and Mexico at $141,071 (Figure 1).
Based on reported transactions, the mean and median prices of international purchases were higher compared with selling prices to domestic buyers. The types of homes purchased by international clients frequently are different from those bought by U.S. buyers (Table). For example, the international nonresident client (Type A) is likely to be substantially wealthier than the median domestic buyer and is probably looking for a property to purchase after having met essential living needs that establish the individual’s presence and standing in the community.
International clients, especially Type A, frequently pay all cash. About 60 percent of reported transactions were all cash compared with domestic all-cash transactions, which generally are 30 percent of the total. Mortgage financing tends to be a major problem for international clients because they lack U.S.-based credit history and Social Security identification. They also have difficulties providing documents required for mortgages.
What Deters Foreigners from Buying U.S. Homes?
Approximately 30 percent of the international clients cited cost, taxes and insurance as major reasons for not purchasing a home. Financing issues were a problem for 19 percent and immigration issues for 9 percent.
Prospective foreign clients did not understand the costs involved in purchasing a U.S. home, which could vary a great deal from their country of origin. Interestingly, 25 percent reported they could not find a property to purchase, the result of low home inventories created by demand in the strongest performing housing markets in the country.
Where Do Most Purchase Homes?
The U.S. international home sale market appears to be geographically concentrated. There is international activity throughout the country, but the top four states represent 55 percent of reported sales (Figure 2). When deciding where to buy a home in the United States, prospective international buyers consider:
- proximity to their home country;
- presence of relatives, friends and associates;
- job and education opportunities;
- climate; and
The top four states in terms of number of foreign homebuyers as a percentage of total U.S. sales were:
- Florida (23 percent),
- California (14 percent),
- Texas (12 percent) and
- Arizona (6 percent).
Homebuyers from Mexico
Buyers from Mexico purchased approximately 70 percent of foreigner-bought residential property in California and Texas. According to Realtor.com, the five markets of greatest interest to potential Mexican buyers are San Diego, El Paso, Laredo, San Antonio and Houston. Texas continues to be preferred by residential buyers from Mexico and Latin America (Figure 3).
According to the NAR survey, approximately 49 percent of reported purchases were in suburban areas and about 30 percent in central city or urban areas. Approximately 91 percent of reported purchases were residential properties, and 9 percent were commercial land or other purchases.
Of the residential properties, 84 percent were detached single family, and 7 percent were multifamily. Mexican buyers’ home purchases averaged $224,123 with an almost even split between mortgage financing and all cash — 54 percent and 46 percent, respectively.
Homebuyers from China
Approximately 51 percent of Chinese homebuyers bought residential properties in California, Washington and New York. Based on Realtor.com information, the five markets of greatest interest to Chinese are Los Angeles, New York, Irvine, San Francisco and Las Vegas. Approximately 83 percent of purchases were in suburban (46 percent) and urban (37 percent) areas.
Of the residential purchases, 70 percent were detached, single family and 22 percent were multifamily. The average price was $590,826 with about 76 percent of purchases being all cash versus 24 percent mortgage financed. Accelerated growth in purchases from China has been caused by existing distortions in the Chinese real estate market that make the market susceptible to large cyclical swings.
On the supply side, local governments’ reliance on land sales for financing and real estate development for growth can lead to excess supply. On the demand side, the market is prone to bubbles because housing represents a uniquely appealing investment opportunity given real deposit interest rates that are close to zero, significant capital account restrictions, a history of robust capital gains and favorable tax treatment. These factors have caused a flight to quality by Chinese residents.
As the global economy regains its momentum, the United States will continue to attract foreign buyers. The United States is the leading world economy; it offers private property rights complemented by strong institutions and a good quality of life for its residents.
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