There was a huge decline in foreign investment in U.S. real estate during the 12 months ending with the first quarter of 2019. The National Association of Realtors® (NAR) said the reduction was evident in both the purchases of resident (i.e. recent immigrants) and non-resident foreign buyers and explained the drop as the result of slowing global economics and low U.S. housing inventories.
NAR's annual Profile of International Transactions in U.S. Residential Real Estate shows that international buyers bought $77.9 billion worth of U.S. existing homes between April 1, 2018 and March 31, 2019. This is a 36 percent decrease from the 2018 report's survey's $121 billion in spending. Non-resident foreign buyers accounted for $33.2 billion of U.S. existing-home sales, a 37 percent decline from the prior level of $53 billion and residents purchased $44.7 billion, down 34 percent from the $67.9 billion previous level. Global economic growth, which increased in 2016 to 2017, slowed to 3.6% in 2018 and is on pace to taper to 3.3% this year.
The number of homes purchased also declined during the period as did the average price. There were 183,100 existing homes bought in 2018-2019 compared to 266,800 in the previous 12-month period. The purchase price averaged $426,100.
Lawrence Yun, NAR's chief economist said, "A confluence of many factors - slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar and a low inventory of homes for sale - contributed to the pullback of foreign buyers. However, the magnitude of the decline is quite striking, implying less confidence in owning a property in the U.S."
Chinese citizens were the top buyers by dollar volume for the seventh consecutive year, purchasing an estimated $13.4 billion worth of residential property. But those purchases were down 56 percent from the previous survey. NAR said the Chinese economy slow to 6.3 percent growth in 2019 compared to 6.9 percent in 2017. The Chinese government has also tightened the monitoring of dollar outflows since 2016 to manage its foreign exchange reserves.
The second largest group of buyers were Canadian, with $8.0 billion in purchases. While Chinese investors and Canadian investors were tied by number of purchases, Chinese buyers paid more for those they bought, putting them ahead of Canada in terms of dollar volume. India was in third place at $6.9 billion, followed by the United Kingdom ($3.8 billion) and Mexico ($2.3 billion.) The dollars spent were lower year-over-year for all five top purchasers.
As is historically the case, Florida was the most popular destination. Twenty percent of foreign purchases were in that state and 42 percent of Canadian buyers purchased there. "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 - a combination which makes the state a very popular destination."
Thirty-four percent of Chinese buyers chose California, although this is fewer than in the prior year, and the state accounted for 12 percent of international purchases. The third most popular destination, at 10 percent, was Texas. The state was particularly desirable among Indian and Mexican buyers. Arizona was in fourth place at 5 percent of the total and was popular for Canadian and Mexican buyers. A mix of international buyers, especially from the UK, put New Jersey in fifth place at 4 percent of the total. North Carolina, Illinois, New York, and Georgia each had a 3 percent share of the foreign dollars.
Just under half of international purchases were in the suburbs and three-quarters of buyers opted for single family homes or townhomes. Eight percent paid $1 million or more for their property while only 3 percent of U.S. sales were in that price range. The median purchase was $280,600, slightly higher than the $259,600 average for all existing homes. Yun said the difference reflects the choice of location and property mix preferred by foreign buyers.
"Even though numbers were lower this year than during 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. "Home buyers from across the globe know that the U.S. market is still a safe, secure and promising place to invest."
International buyers, especially non-residents, are more likely to purchase their homes in cash than other existing homebuyers by 41versus 21 percent. Canadian buyers were most likely to pay cash while a majority of Indian buyers who were residents used a U.S. mortgage. Almost half of Chinese buyers paid cash.
NAR's 2019 Profile of International Transactions in U.S. Residential Real Estate survey was conducted April 5 through May 3, 2019 among a sample of Realtors who were asked to measure the share of U.S. residential real estate sales to international clients, and to provide a profile of the origin, destination and buying preferences of those clients. A total of 11,812 Realtors responded to the 2019 survey.