Foreign Investment in U.S. Residential Real Estate Cools as Economic Growth Tapers

New report from NAR shows slower growth, tighter flow of capital, stronger U.S. dollar, and inventory shortage impacting sales to foreign buyers

Foreign investment in U.S. residential real estate dropped to $78 billion last year, down 36% from the year prior, according to the newly-released Profile of International Transactions in U.S. Residential Real Estate 2019. The slowdown in global growth, tighter controls on the outward flow of capital from China, a stronger U.S. dollar, and low inventory of homes for sale likely contributed to the drop in investment.

Global Economic Growth Tapers

After an upsurge in global economic growth in 2016–2017, growth slowed to 3.6 percent in 2018 and is expected to taper to 3.3 percent in 2019.

Though buyers from China continue to lead all other countries in purchases of U.S. residential real estate, as they have since 2013, China’s growth has moderated in the wake of tighter regulations by Chinese authorities. Additionally, higher U.S. tariffs on Chinese exports also appear to be pulling back growth. These factors likely impacted foreign investment in U.S. residential real estate by Chinese buyers during the 12-month period.

“Even though numbers were lower this year than the previous 12 months, international investors and buyers still spent and invested a great deal of money in U.S. real estate,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota and broker at Edina Realty. “Home buyers from across the globe know that the U.S. market is still a safe, secure and promising place to invest.”

The foreign buyer activity is reported in NAR’s newly released Profile of International Transactions in U.S. Residential Real Estate report, covering transactions during the 12-month period of April 2018–March 2019.

China Continues to Lead in Purchases

Five countries accounted for nearly half (44 percent) of the dollar volume of purchases by foreign buyers: China, Canada, India, the United Kingdom and Mexico. The dollar volume of purchases declined from all top five countries, with the steepest drop in Chinese purchases, which fell to $13.4 billion, a 56 percent decline from the prior level. Despite that drop, China exceeded all other countries in dollar volume of purchases for the seventh consecutive year. Buyers from Canada came in second, with $8 billion worth of property, a 23 percent decline from the 2018 survey reference period, followed by India, $6.9 billion, the U.K., $3.8 billion, and Mexico, $2.3 billion. Notably, the Chinese and Canadians were tied in terms of number of purchases, but, on average, Chinese buyers purchased properties at a higher price point, so they ranked ahead of Canadians in terms of dollar volume.

International Buyers – Where Did They Purchase?

Of the top destinations, just like last year, Florida was at the very top. The Sunshine State attracted 20% of foreign buyers. Forty-two percent of Canadians purchased property in Florida.

“Many Canadians, and other foreigners, found Florida so enticing because of its lenient tax laws,” said Yun. “Additionally, many Florida metro areas have an inventory of cheaper properties, relatively speaking, and this combination makes it a popular place to relocate to.”

California (12 percent) and Texas (10 percent) took the next two top positions for destinations for foreign buyers to purchase, followed by Arizona (5 percent) and New Jersey (4 percent).

The number of units purchased by international buyers decreased, from 266,800 in the previous 12-month period to 183,100. Canada and China purchased the greatest number of units with buyers from both countries purchasing 19,900 each. India comes next (15,900) followed by Mexico (9,700), and the U.K. (5,200).

International Buyers Still Purchasing More Expensive Properties, More Likely to Pay All-Cash

International buyers typically buy more expensive properties than the average existing home. Among foreign buyers, the median price was $280,600, which is slightly higher than the median price of $259,600 for all existing homes sold in the U.S. during the April 2018–April 2019. The price difference reflects the choice of location and type of properties desired by foreign buyers.

Foreign buyers also continue to prefer cash more than domestic buyers do. Forty-one percent of all international transactions were reported as all cash, compared to 21 percent of existing-home sales. Of course, those trends differ as you dig into the regional preferences of homebuyers. For example, buyers from Canada are the most likely to purchase a home through an all-cash sale (75 percent). However, the majority of buyers from India financed their home purchase through a U.S. mortgage (84 percent).

Education Is Key to Working With Foreign Buyers

Homes are still going for top dollar, and foreign buyers continue to spend more money per home than U.S. buyers. Knowing the ins and outs of working with global buyers, and understanding how to counsel them through the potential obstacles or economic factors in buying a home in the United States, is essential to successfully working with this buyer group. The Certified International Property Specialist designation courses will prepare you to build your global business and arm you with the network and tools to help attract international clientele. Learn more about the CIPS designation.

Additionally, Global Business Councils are state- or locally-run association groups who offer networking, education, and economic development resources to help you effectively market your expertise and your region to foreign buyers. Join a Global Business Council in your area. Join a Global Business Council in your area.